World stocks slid to near 11-month lows on Monday, overshadowing relief that the European Central Bank was buying Italian and Spanish government bonds in the latest move to staunch the euro zone debt crisis.
US stocks were down about 2.0 percent shortly after the open on the heels of its worst week in more than two years, while the MSCI’s all-country world stock index was down 1.5 percent.
Despite Standard and Poors downgrading the US government’s long term credit rating on Friday night, safe haven US Treasury debt was higher in price. The 30-year US Treasury bond posted a full-point gain in its first New York trading session, with its yield around 3.80 percent.
While not as large or as liquid a market as US Treasuries, investors continued to seek safe haven in gold which vaulted above $1,700 an ounce for the first time on Monday, after the respective pledges by the G7 and the European Central Bank to quell the turbulence in the financial markets did nothing to put investors at ease.
“What’s concerning us and holding us back from buying what we think is value is that the ferocity of the momentum (in stocks) of the downside is still quite strong,” said Paul Zemsky, head of asset allocation at ING in New York
The Dow Jones industrial average dropped 228.68 points, or 2.00 percent, to 11,215.93. The Standard & Poor’s 500 Index lost 26.23 points, or 2.19 percent, to 1,173.15. The Nasdaq Composite Index tumbled 81.46 points, or 3.22 percent, to 2,450.95.
ECB bond buying
Even the European Central Bank’s dramatic intervention in bond markets, which pushed down yields on Spanish and Italian bonds, was not enough to stem selling in stocks.
European shares were down 2.4 percent after earlier registering gains on the ECB action, intended to take the heat out of the spreading euro zone debt crisis. The euro fell against the U.S. dollar after gaining on the euro initially on the ECB action.
Investors were seemingly unimpressed by weekend talks between industrialized countries aimed at safeguarding the smooth functioning of financial markets following S&P’s move to downgrade the US government long term rating to AA-plus from AAA.
“It won’t be long now before other ratings agencies follow suit, considering the state of the US’ finances. One thing is for certain, and that’s that volatility will continue to remain high, making trading conditions difficult,” said Angus Campbell, head of sales at Capital Spreads.
Moody’s repeated a warning Monday it could downgrade the United States before 2013 if the fiscal or economic outlook weakened significantly, but said it saw the potential for a new deal in Washington to cut the budget deficit before then.