Stocks, Euro Slump on Concerns About Greek Debt

Stocks and U.S. futures fell, sending the MSCI All-Country World Index lower for the first time in five days, as the euro weakened amid concern about Greece’s debt. Treasuries gained and copper retreated.

The MSCI All-Country World Index declined 1.1 percent at 1:03 p.m. in London. The Stoxx Europe 600 Index dropped 1.7 percent and futures on the Standard & Poor’s 500 Index sank 1.5 percent. The euro depreciated 1 percent and the Dollar Index rose for a second day. The yield on the 10-year Treasury fell five basis points and the similar-maturity Greek yield jumped 167 basis points. Copper reached a nine-month low and gold added 0.3 percent. Japan’s markets were shut for a public holiday.

“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if they don’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”

Greece’s ability to avoid default hangs in the balance this week as international monitors will assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. German Chancellor Angela Merkel’s party lost a regional election in Berlin yesterday amid voter anger over her handling of the debt crisis. OPEC Secretary-General Abdalla El-Badri said today that global demand for oil is rising less than expected.

Banks Tumble

More than 11 stocks declined for each that advanced in the Stoxx 600, as all 19 industry groups fell. BHP Billiton Ltd. and Rio Tinto Group led mining companies lower, losing more than 4 percent. Barclays Plc, the U.K.’s second-biggest bank by assets, and France’s Societe Generale SA tumbled more than 5 percent.

The drop in S&P 500 futures indicated the U.S. equity benchmark will fall after posting the third-biggest weekly gain since 2009. President Barack Obama will propose a new levy on U.S. taxpayers making more than $1 million, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.1

Tyco International Ltd., the world’s largest publicly traded maker of security systems, said it will break up into three publicly traded companies to drive growth. Shares of the company rose $2.10, or 4.6 percent, to $45.80 before U.S. trading opened.

The euro slid 1.1 percent against the yen, depreciating against a majority of its 16 most-traded peers. The Dollar Index, which tracks the U.S. currency versus those of six trading partners, advanced 0.7 percent. The yen appreciated against all of its 16 major counterparts.

Fed Meeting

Finance chiefs from the euro region said last week that the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. Federal Reserve policy makers will gather in Washington tomorrow for a two-day meeting to discuss whether additional measures are needed to help revive the economic recovery.

The yield on the German 10-year bund dropped six basis points, while the Italian yield climbed eight basis points. That drove the difference in yield between the two securities 14 basis points higher to 380 basis points. The Greek two-year note yield surged 613 basis points, or 6.13 percentage points, snapping a three-day decline. The Greek-German 10-year spread widened 177 basis points to 21.10 percentage points.

The yield on the 10-year Treasury note fell four basis points to 2.005 percent. The two-year yield dropped to a record 0.1512 percent, according to data compiled by Bloomberg. Wall Street’s biggest bond traders are stockpiling Treasuries at the fastest pace since 2007 on speculation the Federal Reserve will announce a plan this week to buy longer-term debt to spur the faltering economy.

Primary Dealers

The 20 primary dealers held $15.1 billion of Treasury securities due in more than one year as of Sept. 7, the most since December and up from a $75 billion bet against the debt on May 6, Fed data show.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 12.5 basis points to 337.5.

The S&P GSCI index of 24 commodities fell 0.6 percent, led by industrial metals and energy. Copper declined 3 percent to $8,433.25 a metric ton. Gold jumped to $1,818.18 an ounce.

Oil dropped 0.8 percent to $87.30 a barrel, after earlier reaching the lowest in a week in New York on concern weaker economic growth in the U.S., the world’s largest consumer of crude, and Europe will hurt demand.

The MSCI Emerging Markets Index declined 2.2 percent. Poland’s WIG20 Index sank 2.6 percent, led by a 3.9 percent drop in PKO Bank Polski SA, the country’s biggest bank. Benchmark indexes in Hungary and the Czech Republic slid by more than 2 percent. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong sank 3.7 percent to the lowest close since May 2009.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Rob Verdonck in London at rverdonck@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace in London at swallace6@bloomberg.net