Wall Street slumps on oil and euro fear

US stocks fell for a third day and hit their lowest level in two weeks yesterday as widespread risk aversion sank commodity prices, drove the euro to its lowest in a year and pushed Italian bond yields to a record high.

Investors are disappointed the European Central Bank is not buying more bonds of troubled European countries, a move that was widely seen in markets as a requisite next step following last week’s EU summit on strengthening fiscal unity in the bloc.

With the crises festering as Europe slides into recession, the outlook for the world economy is growing bleaker.

A five per cent slump in oil prices hit energy stocks, with S&P’s energy index down nearly three per cent. Chevron Corp fell 3.6 per cent to $99.90.

“There is a growing realisation that the global economy is in jeopardy,” said Bruce Bittles, chief investment strategist at Robert W Baird & Co in Nashville. “Business is cooling everywhere. Right now, the US appears to be operating in a vacuum, but that's not sustainable.”

The S&P 500 fell below its 50-day moving average, signalling a breakdown of its recent trading range between that level and 200-day moving average at the top end. The move has some analysts expecting further weakness.

The Dow Jones industrial average dropped 153.22 points, or 1.28 per cent, to 11,801.72. The Standard & Poor’s 500 Index fell 14.62 points, or 1.19 per cent, to 1,211.11. The Nasdaq Composite Index lost 45.11 points, or 1.75 per cent, to 2,534.16.

Copper fell near a three-week low, aluminium hit its lowest in 17 months and tin made a three-month low. The S&P’s materials sectors index fell nearly one per cent. Shares of miner Cliffs Natural Resources dropped 1.7 per cent to $63.13.

Italy’s borrowing costs rose to a record after an auction of five-year debt, while the euro fell to an 11-month low against the dollar.

US stocks have been weighed down this week in part on fears that the agreement at last week’s European Union summit did not go far enough to resolve the two-year-old debt crisis.

“The main issue right now is the complete, absolute failure of the European Union to come to any kind of solution. They’re back to where they started from,” said Jeffrey Sica, president and chief investment officer of SICA Wealth Management in New Jersey.
“Borrowing costs are going to rise, and that’s going to continue to put pressure on us.”