Stocks fall amid worries about Italy debt
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Warnings of the market turning ugly once Italy's divided government had to pay 7 percent interest to borrow came to fruition Wednesday as Italian bonds sank, dragging major stock indexes with them.
The Dow Jones Index of 30 industrial stocks fell 3.2 percent, shedding 389.24 points to close at 11,780.94. The losses were greater for the S&P 500, a broader market index that fell 3.7 percent to close at 1,229.10, down 46.82.
Wall Street had rallied in recent days as hopes mounted that the European Union would contain sovereign debt crises in Greece and Italy. But optimism melted as interest rates on Italian bonds breached 7 percent. Bailouts of Ireland and Portugal occurred when their borrowing rates hit that level.
Government officials and economists, who were concerned about stemming the global economic harm a Greek default would cause, face an even tougher task in limiting the fallout from the debt problems of the euro-zone's third-largest economy, which has stalled.
"The impact of what is happening in Europe is profound, not just on the European economy, but on the global economy," said Tom Mangan, portfolio manager for James Investment Research in Alpha, Ohio.
Mr. Mangan said a weaker European economy and a weaker euro -- the common currency of EU countries -- will dampen demand there for U.S. goods. U.S. companies export $400 billion to Europe each year, he said.
"It would have a dampening effect on the earnings of some major U.S. companies," Mr. Mangan said.
Europe's sovereign debt problem sets that region up for an extended period of weak growth, said Charlie Smith of Fort Pitt Capital in Green Tree. He said it also extends the timeline for a normal U.S. economic recovery.
"It's more of the same, but it's not an apocalyptic event like 2008," Mr. Smith said.
The size of Italy's economy means its troubles will have an even bigger impact on the global economy, said Jeff Mindlin of the Pittsburgh-based Mindlin Fund.
First Published November 10, 2011 12:00 am
