After declines in Asian and European markets, stocks in the United States opened sharply lower and continued to slide. The Standard Poor’s 500-stock index closed 53.24 points, or 4.5 percent, lower at 1,140.65. The Dow Jones industrial average fell 419.63 points, or 3.68 percent, to 10,990.58, and the Nasdaq composite was down more 131.05 points, or 5.2 percent, at 2,380.43.
The yield on the Treasury’s 10-year note fell below 2 percent for much of the day, the lowest level on record, as investors turned to the safety of fixed-income securities. Gold rose. Oil fell as markets lowered their expectations of global economic growth.
Financial stocks were down more than 5 percent as were other crucial sectors like energy stocks, materials and industrials.
Bank of America and Citigroup both closed more than 6 percent lower.
Investors have been anxious in recent weeks over the euro zone sovereign debt crisis and the pace of the global economy. On Tuesday, markets shed some of the gains that they had recovered in previous trading session that had propelled them to recover from steep losses the week before in the wake of the Standard Poor’s Aug. 5 downgrade of America’s long-term credit rating. Wednesday the market ended mostly flat.
But analysts have been under no impression that the underlying problems causing the volatility in the markets have receded, with some renewing the debate on an emerging recession.
And on Thursday the skittishness of investors was evident.
Investors were alarmed when a single bank, out of nearly 8,000 in the euro area, took advantage of a European Central Bank program that ensures institutions have ample access to dollars. The bank, which was not identified, borrowed $500 million on Wednesday from the central bank, a relatively modest sum. But it was the first time any bank had tapped the dollar pipeline since February.
A shortage of dollars for European banks was one of the features of the 2008 financial crisis.
Fears were inflamed further when The Wall Street Journal, citing people it did not name, reported on Thursday that United States regulators were scrutinizing whether European banks would be able to continue financing themselves.
“Currently many banks cannot access term-funding markets at reasonable rates,” analysts at Morgan Stanley said in a note. “As a result, commercial banks continue to tighten their credit conditions, albeit marginally, to both their corporate and retail clients. If these term-funding stresses continue well into the fall, the risks are rising that a lack of credit availability could dent domestic demand growth further.”
Some analysts counseled calm, saying that while there is clearly stress in the market it is still far from 2008 levels. “There is undoubtedly some tension around,” said Jon Peace, a banking analyst at Nomura in London. But he added, “I think the market is still overreacting to this funding issue.”
Bank funding rates in the United States have remained contained, but in Europe some stresses are appearing.
Interbank lending rates — a measure of banks’ willingness to lend to one another — have increased, though they are still below levels reached in 2008.
On Thursday, the Vix, a measure of stock market volatility, jumped sharply. It rose to 44.78 by the end of the day. The measure is sometimes called the fear index; Vix values above 30 are associated with high levels of market uncertainty and anxiety. The index rose during the turmoil last week but had eased over the last few days to just above 30 points.
The sharp drop in the equities market comes amid a period of high volatility that has been accentuated by low trading volumes, concerns over the euro zone sovereign debt and its potential impact on the banking sector, and recent data that has economists lowering their outlooks for global economic growth.
Another measure of funding stress, swap rates in foreign exchange markets where banks swap euros for dollars, now stand at around 82 basis points — double where they stood a few months ago, though still less than half of their levels in the depths of the 2008 crisis.
“It is a sign of risk aversion,” said Eric Green, an economist at TD Bank. “There is a lot of stress there.”
David Jolly, Graham Bowley and Jack Ewing contributed reporting.
Article source: http://feeds.nytimes.com/click.phdo?i=52b1689c25ff61f1e425969dfd069496
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