Stocks suffered their biggest one-day decline since mid-September as a surge in Italian bond yields and concerns about the eurozone pummeled bank stocks.
The Dow Jones Industrial Average dropped 389.24 points, or 3.2 percent, to 11,780.94, the biggest one-day slide since Sept. 22. The Standard & Poor’s 500-stock index fell 46.82 points, or 3.7 percent, to 1,229.10, while the Nasdaq Composite declined 105.84 points, or 3.9 percent, to 2,621.65.
The losses wiped out the previous two days’ gains and pushed the major indexes into negative territory for the month. It also sent the S&P 500 and the Nasdaq back into the red for 2011. The Dow is now up 1.8 percent this year.
Leading the declines were financial and materials stocks. J.P. Morgan Chase fell 7.1 percent and Bank of America declined 5.7 percent. Hewlett-Packard and Alcoa were also weak, shedding 5.4 percent each.
Morgan Stanley, which fell in September due to fears about its exposure to French banks, tumbled nine percent. The investment bank said it has $1.79 billion in net “country risk exposure” to Italy, a category that includes obligations from corporations and banks in addition to sovereign debt.
Italian bond yields soared to euro-era highs after clearinghouse LCH.Clearnet Group raised the margin required to trade Italy’s government bonds. The yield on the benchmark 10-year bond rose above seven percent, peaking at 7.494 percent before coming back to 7.205 percent, according to Tradeweb.
In addition, a report in Germany suggesting that German Chancellor Angela Merkel’s party is trying to allow countries to leave the euro while remaining in the European Union added to uncertainties.
“Italy started us off, but everything subsequent to that is whether the eurozone is going to hold together,” said Rick Bensignor, chief market strategist at Merlin Securities.
The news pushed many investors into Treasurys, which sent the yield on the 10-year note back below two percent and a one-month low.
European stocks also finished lower. The Stoxx Europe 600 lost 1.7 percent, Germany’s DAX index fell 2.2 percent and Italy’s FTSE MIB index dropped 3.8 percent. The euro tumbled against the dollar to its lowest level in a month. Gold futures slipped, while oil prices fell to settle at $95.74 a barrel.
