Financial markets weighed down by fears about the European debt crisis fluctuated in wild trading on Thursday, with US stock prices losing almost 9 per cent, before reclaiming most of their losses by day’s end.
The speed of the descent in stock prices and other markets fuelled suspicion that a computer trading program error had occurred as traders wrestled with the anxiety that Greece could become the first eurozone country to default on its debt.
The S&P 500 had already fallen 4 per cent to the key level of 1,200, when the market suddenly plunged and sent the benchmark down as much as 8.6 per cent to 1,065.79. The Dow Jones Industrial Average fell by 998.50 points, or 9.2 per cent.
At one point the price of Procter & Gamble, a blue chip consumer product giant, seen as a safe haven stock, fell 37 per cent in a matter of minutes.
Analysts scrambled to explain the dramatic drop and rebound.
“It’s really shocking,” said Jeff Palma, global strategist at UBS. “This is not your normal every day pull back, this is a pretty full-on collapse in risk appetite.”
At the close in New York, the S&P was down more than 3 per cent at 1,128.
The deteriorating situation in Europe and growing anxiety had investors exiting risk assets for most of the day. Then just after 2:30 pm in New York, the markets tumbled across a period of 10 minutes in a manner that recalled the worst moments of the financial crisis in 2008.
Before Wall Street plunged, Angela Merkel, Germany’s chancellor, likened the crisis to “a battle of the politicians against the markets” and attacked the role played by credit rating agencies. She said: “I am determined to win.”
In a letter issued on the eve of Friday’s eurozone summit in Brussels, Ms Merkel and Nicolas Sarkozy, French president, demanded a review of how the agencies evaluate government debt and publicise their decisions.
The stock sell-off sparked tumult in other markets. Gold surged above $1,200 an ounce, while oil dropped more than $5 a barrel.
The yield on 10-year Treasury notes fell 26 basis points to 3.28 per cent, while the yen soared by 5 per cent versus the dollar and 6 per cent against the euro.
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