MercoPress. South Atlantic News Agency

Euro confidence crisis, Italian chapter, sends world markets tumbling

Desperate selling in world markets

Global stocks and the Euro sank as fears that Italy could become the latest country caught up in the Euro-zone debt crisis caused investors to sell risky assets and snap up safe-haven US Treasury debt, pushing the 10-year note's yield below 3%.

The problems in Italy, which has the highest sovereign debt ratio relative to GDP in the Euro zone after Greece, come amid efforts to help Greece with its debt problems. Investors fear the crisis will keep spreading and eventually affect the global economy, particularly the banks exposed to the debt.

The concern about Italy, the Euro zone's third-largest economy, prompted an emergency meeting of top European Union officials. Italian government bonds and stocks dropped as investors cut their exposure.

The benchmark 10-year US Treasury note jumped 30/32 in price, pushing its yield down to 2.92% on Monday from 3.02% late on Friday.

“We are seeing some follow-through buying in Treasuries, and the European situation continues to fester. It is just an environment where there are a lot of factors that are stacking up as bullish for bonds,” said Marty Mitchell, head of government bond trading at Stifel Nicolaus in Baltimore.

A weaker-than-expected jobs report on Friday and data showing China's import growth fell to its slowest pace in 20 months also drove investors away from stocks. The Dow Jones industrial average was down 151.44 points, or 1.20%, at 12,505.76 at the close. The Standard & Poor's 500 Index was down 24.31 points, or 1.81%, at 1,319.49. The Nasdaq Composite Index was down 57.19 points, or 2.00%, at 2,802.62.

The developments in Italy grabbed the spotlight as investors awaited the first of second-quarter earnings from US companies. The earnings period starts after Monday's closing bell with results from aluminium maker Alcoa (AA.N), which is also a Dow component.

The pan-European FTSEurofirst 300 index .FTEU3 of top shares fell 1.5% to close at 1,097.60 points, its lowest closing level since June 28, while an index of emerging market stocks .MSCIEF lost 1.9%.

In the foreign-exchange market, the dollar .DXY rose 1.1% against a basket of major currencies. The Euro was down 1.7% at 1.4025 USD, after earlier hitting a session low at 1.3984, its lowest in six weeks.

JP Morgan said Italian banks are vulnerable because of their high reliance on wholesale funding. Moreover, their government bond holdings stand at 6.33% of assets, higher than those of Spanish banks.

Oil fell on the euro zone crisis while gold prices rose.

On the New York Mercantile Exchange, US crude for August delivery fell 1.05, or 1.09%, to settle at 95.15 a barrel. Spot gold was up 0.3% at 1,547.76 an ounce, after hitting 1,556.59, near a two-month high, earlier in the session.

In Latin America markets followed on the world tendency with Brazil’s Bovespa loosing 2.10%; Argentina’s Merval, 2,14%; Mexico’s BMV, 038% and Chile’s IPSA, 0.28%.