Dow sheds 3 percent amid Italy rout

Richard Drew / AP

Trader Michael Zicchinolfi runs across the floor the New York Stock Exchange Wednesday, Nov. 9, 2011. Stocks lost about 3 percent on worries about Europe's debt crisis.

By Msnbc.com staff and wire

Worries that the growing European debt crisis would drag down the global economy slammed Wall Street Wednesday, pushing the Dow Jones industrial average down about 3?percent at the close.

The broader market was harder hit. The S&P 500 and Nasdaq ended down almost 4 percent. The market?s fear gauge, the CBOE Volatility Index, hit a high of 36 during the session. At one point during the session, the Dow was off more than 400 points.

Financial stocks led what was a global rout. Shares of Morgan Stanley, Bank of America, Goldman Sachs, Wells Fargo and Citigroup all tumbled on worries about bank exposure to Europe. ?

U.S. stocks had been under selling pressure from the first clang of the opening bell after Italy's borrowing costs soared to 7.502 percent, a level that many feel is unsustainable. Investors pushed Italian rates higher because they wanted more than just Italian Prime Minister Sylvio Berlusconi?s promise he would step down when the Italian parliament passes a package of austerity measures.

Global investors took their money and ran amid rising worries that they wouldn?t be getting their money back. They fear that Italy, Europe's third-largest economy, will not be able to deliver on promises to get its fiscal house in order, no matter who is running the country.

"Italy's latest debt woes signal a new, even more dangerous phase in Europe's debt crisis," Mohamed El-Erian, co-chief investment officer at PIMCO, told Reuters. PIMCO is home to the world's largest bond fund and a holder itself of Italian sovereign debt.

In Greece, power-sharing talks fell apart between the country's two main political parties, raising doubt about whether the country will be able to receive the next installment of emergency loans it needs to avoid default.

Markets fear that a chaotic default by either Greece or Italy would lead to huge losses for European banks. That, in turn, could cause a global lending freeze that might escalate into another credit crisis similar to the one in 2008 after Lehman Brothers fell.

Some analysts fear that the euro itself could fall, which would lead to inflation and a breakdown in free trade agreements in the European Union.

European markets also fell sharply. Italy's benchmark index plunged 3.8 percent. Germany's DAX and France's CAC-40 each lost 2.2 percent.

The prices of assets seen as safe havens rose sharply. The dollar jumped 2 percent vs. the euro. The yield on the benchmark 10-year Treasury note fell to 1.97 percent from 2.08 percent late Tuesday, a steep drop.

Officials are trying to calm fears in Italy as bond yields surge above 7%, with CNBC's Ross Westgate. Doug Ramsey, The Leuthold Group, weighs in.

Source: http://bottomline.msnbc.msn.com/_news/2011/11/09/8722120-stocks-stumble-amid-italian-crisis-worries

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