Volatility roils markets

New York: Fears of a Greek default and credit contagion ripped through markets on Monday, tumbling European shares to their lowest in more than two years and the euro to a seven-month low against the US dollar.

US stocks fell, sending the Standard & Poor's 500 Index lower for a third straight day, as speculation Greece is moving closer to default spurred turmoil in global financial markets.

Stocks pared losses after Bank of America said it aims to cut about $5 billion (Dh18.36 billion) in annual costs by the end of 2013 as it implements a plan to restore profitability and chipmakers rallied after Broadcom announced a takeover. Morgan Stanley and Goldman Sachs Group slumped at least 1.2 per cent, following losses in European banks, and as Citigroup slashed its third-quarter profit estimates for the US lenders.

The S&P 500 lost 0.5 per cent to 1,148.4 at 10.31am in New York, after falling as much as 1.1 per cent. The benchmark measure slumped 1.7 per cent last week, wiping out its rally since September 2 on the final day amid concern Europe's crisis is worsening. The Dow Jones Industrial Average retreated 70.57 points, or 0.6 per cent, to 10,921.56.

"There's so much anxiety among investors," Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust, said. "There's troubling news out of Europe. People are concerned that if Greece defaults, there could be a ripple effect. It's fear of the unknown. There's an abundance of bad news overseas. And in the US, the economic news has not really been enough to boost confidence."

Concerns that Moody's Investors Service could downgrade the credit-worthiness of French banks and the lack of a solution to Greece's debt problem undermined investor confidence and the appetite for risk.

Safe-haven buying briefly pushed yields on benchmark U.S. Treasury 10-year notes to lows last seen at least six decades ago and 10-year Bund yields fell to 1.73 per cent. The euro later rebounded from its low to trade up almost 0.8 per cent at $1.3673 to the dollar.

Shares of French banks Societe Generale, Credit Agricole and BNP Paribas slumped about 10 per cent amid expectations of an imminent downgrade, due largely to their exposure to Greek bonds.

Adding to the gloom was the failure of a weekend meeting of finance ministers from the Group of Seven industrialised nations to generate fresh proposals for boosting global growth.

"There was hope there would be something more resolute out of the G7 meeting over the weekend," said Ian King, head of international equities at Legal & General.

The pan-European FTS Eurofirst 300 index of top shares fell 3.2 per cent, after earlier slumping to 883.04, its lowest since July 2009. The index has lost more than 20 per cent in 2011.

MSCI's all-country world equity index fell 1.5 per cent. Brent crude oil fell as much as $1.60 per barrel to a low of $110.17. US crude slid 72 cents to a low of $86.52. "There are fears about the slowing economy, fears about the debt, fears about default and we are not having coordinated multilateral actions being taken; we are having the opposite," said analyst Robin Bhar of Credit Agricole.