Europe fear surges; Dow falls almost 240

Setting up: Workers try to get a screen working at the Stock Exchange in Madrid on Monday. The Bank of Spain says the country’s recession-plagued economy contracted 0.4 percent in the second quarter, a performance even worse than in the first three months of the year. (AP Photo/Paul White)

Fear over European debt surged Monday and drove stocks sharply lower around the world. The Dow Jones industrial average plunged almost 240 points in morning trading.

The price of crude oil dropped more than US$3.50 per barrel to below $90, and yields for US government bonds sank to record lows, a sign that traders were seeking the safety of American debt.

The euro hit a two-year low against the US dollar.

Borrowing costs rose sharply for Spain and Italy, a signal of renewed investor worries that the Spanish government will need an international bailout.

The Bank of Spain said the Spanish economy contracted by a quarterly rate of 0.4 percent in the second quarter. Falling economic output makes it even more difficult for Spain to deal with its debts.

An eastern region of Spain said last week that it would need a bailout from the government in Madrid, and a southern region said over the weekend that it might also need help.

Spain's market regulator said it was temporarily banning short-selling of shares on its stock indexes. In a short sale, an investor seeks a profit by betting that the price of a certain stock will fall.

Strong selling rattled European markets. The main stock index dropped more than 7 percent in Greece, 3 percent in Spain and Germany and 2 percent in France and Britain. Asian stocks were also sharply lower.

In the United States, the Dow was down as much as 239 points. At 10:10 a.m. EDT (1410 GMT), it was off 226 points at 12,595. The Dow has had only four declines of 200 points this year, including its worst, a 274-point drop on June 1.

The Standard & Poor's 500 index fell 24 points to 1,338, and the Nasdaq composite index plunged 66 points to 2,859.

The selling was widespread. In the first hour of trading, only 10 stocks in the S&P 500 were higher for the day.

Bank stocks, which tend to take a hit when fear flares in Europe, were among the biggest losers. Citigroup stock dropped more than 2 percent and Bank of America 1.6 percent.

Energy stocks were almost among the worst performers, following the price of oil lower. Chevron stopped $2.83, or 2.6 percent, to $106.36, and Exxon Mobil declined $1.33, or 1.5 percent, to $84.63.

The euro slipped just below $1.21 against the dollar, its lowest reading since June 2010.

There were also signs that a global economic slowdown is hitting US companies that rode out the recession fairly well, largely because currencies overseas have tumbled against the dollar.

While global sales at McDonald's restaurants open at least a year rose 3.7 percent, profits slid by about the same rates due to currency exchange. McDonald's generates about two-thirds of its revenue outside the US.

"A disproportionately large amount of revenue overseas is seen as a negative today," said Lawrence Creatura, a porfolio manager at Federated Investors, a mutual fund firm. "The list of weakening overseas markets is getting longer by the day."

Stock in the world's largest hamburger chain slid 3 percent in early trading after the company fell short of most Wall Street expectations for both net income and revenue.

At Hasbro, the toy company, international revenue slipped 4 percent for the second quarter. Taking out the impact of the stronger dollar, however, international revenue gained 5 percent.

A forecast from a Chinese central bank adviser that China's economy could grow at a slower pace in the third quarter deepened concerns about the global slowdown. (nvn)