Stocks slid, erasing most of yesterday's rally, and Treasuries rose for a third day amid concern the European sovereign debt crisis is worsening. The dollar climbed versus 12 of 16 major peers, with the euro losing 1.3 percent to $1.4188. Gold futures surged to a record.
The Standard & Poor's 500 Index sank 3.4 percent to 1,133.03 at 11:20 a.m. in New York following the gauge's biggest jump in more than two years yesterday, when it rebounded from its worst loss since 2008. The Stoxx Europe 600 Index plunged 3.1 percent to a two-year low as Paris-based lender Societe Generale SA retreated 13 percent. The 10-year Treasury yield fell 12 basis points to 2.13 percent after touching a record low of 2.03 yesterday. Costs to protect the government debt of Greece, Italy, Spain and France rose.
Central banks are fighting to prevent a recession, with Federal Reserve Chairman Ben S. Bernanke vowing yesterday to keep borrowing costs at an all-time low to revive a recovery that's "considerably slower" than expected. People familiar with the transactions said the European Central Bank bought Italian and Spanish bonds to help reduce borrowing costs. Switzerland's central bank said today it will "significantly" increase the supply of liquidity to banks.
'Spiral Down'
"It's a spiral down until it stops," Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, which manages $1.2 billion, said in a telephone interview. "We're going through these constant day-to-day battles over Europe's debt crisis, a downgrade in the U.S. and a weakening economy. There's no positive sentiment regarding a light at the end of the tunnel."
Financial shares led losses today, with Bank of America Corp. and Citigroup Inc. dropping more than 8 percent as 79 of 81 companies in the S&P 500 Financials Index retreated. Walt Disney Co. and Microsoft Corp. slid more than 4.7 percent to help lead declines in all 30 stocks in the Dow Jones Industrial Average, which plunged as much as 446 points before trimming losses.
The S&P 500 rallied 4.7 percent yesterday, rebounding from a 6.7 percent slide on Aug. 8 when markets opened following the reduction in the U.S. credit rating to AA+ from AAA at S&P. Yesterday's rally followed the Fed's announcement that it plans to keep its benchmark rate at a record low through mid-2013 as it considers other tools to bolster economic growth.
European Shares
Almost six stocks fell for each that gained in the Stoxx 600. Intesa Sanpaolo, the Italian lender, and French bank BNP Paribas lost more than 10 percent. France's CAC-40 Index (CAC) sank 4.7 percent to the lowest level since July 2009, while the FTSE- MIB Index in Italy plunged 5.9 percent for its biggest plunge on a closing basis since March 2009.
The cost to insure French government debt against default rose 10 basis points to a record 172 basis points. France's top credit grade was affirmed by S&P, Moody's Investors Service and Fitch Ratings amid concern that Europe's sovereign debt crisis is intensifying.
The outlook on France is stable and its AAA ranking is "warranted," Moritz Kraemer, S&P's managing director of European sovereign ratings, said today in a Bloomberg Television interview. Francesco Meucci, a spokesman for Moody's, said in a telephone interview the country's Aaa grade is "stable" and Fitch spokesman Brian Bertsch said France is rated AAA with stable outlook as per its May 31 statement.
'Under Attack'
"If credit default swaps on France are under attack that's not a good sign," said Yves Marcais, a sales trader at Global Equities in Paris. "That means that France is under attack and that's worrisome. French banks hold a lot of French bonds."
Societe Generale (GLE) "categorically denies all market rumors,"Emmanuelle Renaudat, a spokeswoman for the French bank said after the company's shares declined as much as 23 percent today. Costs to insure debt of Societe Generale rose 29 basis points to a record 299 basis points, according to CMA prices for credit-default swaps.
The yield difference between two- and 10-year Treasuries was 197 basis points, near the narrowest in almost a year, underscoring concern about the pace of the economic recovery. The government sells $24 billion of 10-year securities today after yesterday's auction of three-year securities drew the lowest yield since records began in May 1981 in the first note sale since Standard & Poor's cut the U.S. debt rating on Aug. 5.
'Massive Volatility'
"The markets are going through massive volatility and it's not surprising because we are in uncharted water, for the economy and for policies, and therefore for markets," Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., the world's biggest manager of bond funds, said in a Bloomberg Television interview. "So sentiment is a big issue and you get these massive moves."
The Spanish 10-year yield fell five basis points to 5.03 percent and Italian yields decreased seven points to 5.11 percent. Italy sold 6.5 billion euros ($9.4 billion) of 366-day bills, with the average yield at 2.959 percent, compared with a yield of 3.67 percent at the previous sale on July 12.
The Swiss franc erased earlier losses against the euro, while retreating 1 percent from a record versus the dollar. The Swiss National Bank said today it boosted the supply of liquidity to banks by expanding sight deposits to 120 billion francs ($165 billion) from 80 billion francs. It will also conduct foreign-exchange swap transactions, a tool last used in 2008. The central bank said it's ready to take further measures if needed.
The S&P GSCI index of 24 commodities rose for the first time this week, climbing 1.3 percent. Oil climbed 1.6 percent to $80.69 a barrel after crude inventories fell the most since June, according to the American Petroleum Institute.
Gold futures jumped 1.9 percent to $1,775.70 an ounce after touching an all-time high of $1,782.90. Commodities may outperform equities the rest of the year because of record demand and shortages, according to Barclays Capital.
Courtesy bloomberg data
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