U.S. Stocks Fall Sharply In Afternoon On Fed Rate Hike Fear
NEW YORK (AP) — U.S. stocks fell sharply as fears over possible interest rate hikes by the Federal Reserve roiled financial markets around the globe. In Europe, investors dumped stocks and fled to government bonds, pushing yields to record lows. The euro sank to a 12-year low against the dollar.
KEEPING SCORE: The Dow Jones industrial average fell 255 points, or 1.4 percent, to 17,740 as of 1:15 p.m. Eastern time. The Standard & Poor's 500 index fell 28 points, or 1.3 percent, to 2,051. The two indexes are now at breakeven for the year.
The Nasdaq composite lost 70 points, or 1.4 percent, to 4,872. The Nasdaq is up nearly 3 percent so far in 2015.
FED FEARS: Traders think it's more likely that the Federal Reserve will raise interest rates in June given the strong U.S. jobs report on Friday. Ultra-low interest rates and other monetary stimulus have been a boon for stocks and bonds in the six-year bull market.
CURRENCY TURMOIL: The euro dropped 1.1 percent against the dollar to a 12-year low of $1.0724. The drop came a day after the European Central Bank began buying bonds to lower long-term interest rates in a program called quantitative easing, or QE. Lower interest rates can make a country's currency less attractive, and weaken the currency.
The Japanese central bank is also buying bonds to lower long-term rates. The dollar slipped 0.2 percent against the Japanese currency to 121.19 yen. The U.S. Fed ended its bond-buying program last year.
SPLIT POLICIES: Widespread expectations that the U.S. will also start raising short-term interest rates this year will likely attract investors seeking higher yields, especially because central banks in other major economies are moving to ease rates. When central banks move in opposite directions, they can cause disruptions in the global flow of capital, which, in turn, can weigh on stock prices.
ANALYST TAKE: "Regardless of whether the Fed hikes in June or September, it's coming and it's not very far away," said Craig Erlam, senior market analyst at OANDA. "That makes the dollar very strong compared to its peers."
GREEK FEARS BACK: Though European stocks have been supported in recent weeks in the run-up to the European Central Bank's 1 trillion euro ($1.2 trillion) bond-buying program, tensions remain over Greece. Analysts say the eurozone is better protected now than two years ago against a potential default in Greece, but the possibility continues to create uncertainty. Eurozone creditor states are currently withholding rescue money from Greece until the country comes up with a list of suitable economics reforms. Greece faces a cash crunch this month.
EUROPEAN SLUMP: France's CAC 40 lost 1.1 percent while Germany's DAX fell 0.7 percent. Britain's FTSE 100 dropped 2.5 percent.
Bonds in several European countries rallied as investors sought safety, sending yields sharply lower. In Germany, France, the Netherlands, Spain and Italy, yields on 10-year government bonds hit record lows, according to data from Tradeweb.
"The Greek government is pushing the envelope with its creditors and the market is scared by the prospect of another long drawn-out debt negotiation," said David Madden, market analyst at IG.
BOOK TROUBLE: Barnes & Noble dropped $2.30, or 9 percent, to $22.56 after reporting fiscal third-quarter profit that fell short of Wall Street expectations. Revenue also fell due to weakness in its retail and Nook segments.
CREDIT SUISSE'S NEW BOSS: Credit Suisse surged after the Swiss bank sought to turn the page on a period of scandals and fines by replacing its CEO, Brady W. Dougan, with the head of British insurer Prudential, Tidjane Thiam. Credit Suisse rose $1.63, or 6.9 percent, to $25.14.
ASIA'S DAY: Japan's benchmark Nikkei 225 fell 0.7 percent despite the yen weakening against the dollar, which usually helps export stocks. Hong Kong's Hang Seng shed 0.9 percent.
ENERGY: Benchmark U.S. crude fell $1.32 to $48.68 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils, dropped $1.70 to $56.83 a barrel in London.
BONDS: U.S. government bond prices rose. The yield on the 10-year Treasury note fell to 2.13 percent from 2.19 percent late Monday.
– by AP Reporter Bernard Condon