Stocks and the euro slid and safe-haven government bonds rose on Friday as the latest effort to impose austerity measures in Greece faltered, casting doubt on the prospects of a bailout deal aimed at averting a messy Greek debt default.
The leader of the smallest party in Prime Minister Lucas Papademos' coalition government, George Karatzaferis, said he could not vote in favor of a 130-billion-euro bailout agreement Greece needs to avoid default.
Although his party has only 15 deputies out of 300, his comments drove nervous investors to sell stocks and the euro ahead of a parliamentary vote on the deal scheduled for Sunday.
Selling was broad on Wall Street, with all 10 major S&P sectors negative in early trading. The CBOE Volatility index , a measure of volatility known as a "fear index," spiked more than 11 percent, its biggest jump in three months.
The declines put the benchmark Standard & Poor's 500 Index on pace for its first weekly decline in the past six.
"Given the fact we've got a 7 percent rally in six weeks and a 25 percent rally in four months, it's perfectly reasonable that we should have a little bit of pause here," said Phil Orlando, chief equity market strategist at Federated Investors, in New York.
The Dow Jones industrial average was down 112.88 points, or 0.88 percent, at 12,777.58. The Standard & Poor's 500 Index was down 10.54 points, or 0.78 percent, at 1,341.41. The Nasdaq Composite Index was down 20.92 points, or 0.71 percent, at 2,906.31.
A pre-weekend scramble for safety reversed the previous day's decline in government debt prices, spurred by optimism Greece would soon receive a second bailout. Those hopes pushed the 30-year U.S. Treasury bond yield to its highest levels since late October.
"It's all about Greek headlines now. Markets are facing another face-off and generally speaking, investors don't like being short Treasuries when these things are going on," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York.
Earlier, euro zone finance ministers gave a lukewarm response to an inter-party agreement from Athens on austerity measures and set more conditions for Greece to secure a second bailout needed to ensure it can meet debt repayments next month.
That left the Greek rescue deal in limbo ahead of the weekend and tempered some of the enthusiasm seen in financial markets on Thursday after Greek political leaders clinched an agreement on austerity after weeks of talks.
"Markets seem to have had enough of it for now," said Credit Agricole rate strategist Orlando Green. "It may just be kicking the can down the road again as debt is in unsustainable territory and whether they (Greece) can deliver something long lasting is another question."
The FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,066.03.
Earlier, Asian stocks also lost ground, pushing global stocks as measured by MSCI's all-country world equity index down 1.2 percent at 324.05.
Still, the index is up more than 20 percent from its October trough as low interest rates from major central banks and a huge cash injection by the European Central Bank fueled a rally in stocks, commodities and higher-yielding currencies.
The euro was off 0.7 percent against the dollar at $1.3185. |