In a sign that Europe’s woes were far from over, Italian and Spanish bond yields soared, prompting the European Central Bank to buy the debt, while shares of European banks came under heavy selling pressure.
MF Global Holdings, the futures broker that made big bets on European sovereign debt, filed for US Chapter 11 bankruptcy protection, making it the biggest US casualty of the Eurozone crisis. Trading in MF Global shares was halted.
Financial shares fell sharply. Morgan Stanley, which has tended to do poorly when fears about Europe rise, dropped 8.6 per cent to $17.64. Yesterday’s losses marked a reversal of last week’s euphoria over European leaders’ deal to contain the debt crisis.
“We started the day with more questions about the European Union,” said Mark Grant, Southwest Securities managing director, in Fort Lauderdale, Florida.
“Serious questions were raised, and then MF Global came along. MF is involved in all kinds of markets, and the fallout from them going bankrupt is unknown.”
As the sell-off accelerated at the market’s close, the CBOE volatility index jumped 22.1 per cent, its biggest daily gain since mid-August.
News late in the day that Greece called an unexpected referendum on a new EU aid package baffled investors and added to uncertainty.
Contributing to the downward pressure, the US dollar shot up to a three-month high against the yen as Japan’s government intervened to curb its currency’s appreciation, which hurt the export-based economy.
The dollar’s jump caused shares of energy and natural resources companies to fall sharply. The S&P energy index fell 4.4 per cent and was the worst-hit sector.
Despite the declines, the benchmark S&P 500 index was up nearly 11 per cent for the month and posted its best monthly percentage gain since December 1991.
The Dow Jones industrial average dropped 276.10 points, or 2.26 per cent, to 11,955.01. The Standard & Poor’s 500 Index fell 31.79 points, or 2.47 per cent, to 1,253.30. The Nasdaq Composite Index lost 52.74 points, or 1.93 per cent, to 2,684.41.