US markets plunge on worsening European debt crisis

24 Nov 2011 Evaluate

The US markets sank on Wednesday, as costs to insure European government debt rose to a record after a German bund auction fueled concern the debt crisis is worsening. Concern that turmoil in European bond markets is threatening the global economic recovery was amplified by data showing European services and manufacturing output shrank for a third month, while a preliminary gauge indicated China’s manufacturing contracted by the most since March 2009, according to reports by Markit Economics showed.

Conversely, the United States sold $29 billion in seven-year notes at a record low auction yield. The markets offered little reaction to domestic data, which showed consumer spending rising less than projected as well as orders for durable goods falling in October. Other reports had more first-time applicants than estimated filing for jobless benefits last week, although the overall count remained under 400,000 for a third week, while US consumer confidence for November ticked up to its highest level since June, albeit at a relatively low level. Besides, the US Federal Reserve announced that the banks will be stress tested for the deterioration in the euro zone liquidation conditions and a possible debt contagion rooted in the region.

The markets were also cautious as Greece and Italy inched forward in implementing economic reforms. Germany’s debt agency had to keep nearly half of a sale of 6 billion euros as a result of too few bidders, with the poor results pushing up the borrowing cost over 10 years for Europe’s powerhouse economy.

The Dow Jones industrial average lost 236.17 points, or 2.05 percent, to 11,257.50. The Standard and Poor’s 500 closed lower by 26.25 points, or 2.21 percent, to 1,161.79, while the Nasdaq composite lost 61.20 points, or 2.43 percent, to 2,460.08.

The Indian ADRs closed in red on Wednesday, Infosys Technologies was down by 1.37%, HDFC Bank was down by 1.00%, ICICI Bank was down by 0.94%, Tata Motors was down by 0.41% and Dr. Reddy’s Lab was down by 0.33%.

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