NEW YORK (Reuters) – Global stocks slid on Monday on worries Greece could leave the euro zone, while oil prices fell after a move by economic powerhouse China to prop up lending sparked fears its economy was weaker than has been thought.
Data pointing to a deeper European recession, along with growing skittishness about the Greek debt crisis, pushed European shares fell nearly 2 percent to a 4-1/2-month closing low. Stocks on Wall Street touched a three-month low before recovering some losses, while the euro hit a near four-month low against the dollar on the fears over Greece.
Government debt gained, pushing German yields to record lows, after coalition talks in Greece on Sunday faltered and increased the chance of mid-June election. President Karolos Papoulias summoned political parties to a third day of talks on Tuesday, but the Greek Socialist leader, Evangelos Venizelos, said he was not optimistic a coalition government could be formed.
The yield on U.S. Treasuries, which moves inversely to price, fell to the lowest level since early October, breaking decisively below 1.80 percent, a key resistance point.
The benchmark 10-year U.S. Treasury note was up 13/32 in price to yield 1.79 percent.
“Treasuries are higher as fears about new political realities in Germany and Greece, global growth and Spanish banks drive investors into safe-haven debt markets,” said William O’Donnell, managing director and head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.
German Chancellor Angela Merkel’s Christian Democrats suffered a crushing defeat on Sunday, which could embolden the opposition left to step up attacks on her European austerity policies. Merkel said on Monday the defeat was a bitter setback but would not alter her view on how to achieve growth.
Safe-haven currencies, such as the dollar and the Japanese yen, rose. Expectations are for the euro to continue to fall, driven by speculation over the implications of Greece’s possible exit from the euro zone.
The Dow Jones industrial average .DJI was down 58.42 points, or 0.46 percent, at 12,762.18. The Standard & Poor’s 500 Index .SPX was down 6.80 points, or 0.50 percent, at 1,346.59. The Nasdaq Composite Index .IXIC was down 11.20 points, or 0.38 percent, at 2,922.62.
Compounding the picture for investors was data that showed output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signaling the bloc’s recession may not be as mild as policymakers hope.
Industrial production in the 17 countries sharing the euro fell 0.3 percent from February, the EU’s Eurostat statistics office said. Economists polled by Reuters had expected a 0.4 percent increase in March.
Signs of a struggling Chinese economy also weighed on investor sentiment. China, the world’s second biggest economy, cut bank reserve requirements on Sunday to free up an estimated 400 billion yuan for lending in a bid to avert a sudden slowdown.
The FTSEurofirst 300 index .FTEU3 of top European shares ended down 1.8 percent at 1,004.20, its lowest close since December 30.
MSCI’s measure of world stock markets .MIWDOOOOOPUS fell 1.2 percent to 311.23.
German Bund futures rose as much as 92 ticks on the day to an all-time high of 143.69, while German 10-year yields plumbed a record low of 1.434 percent.
Oil fell sharply to extend recent heavy losses as the mounting political uncertainty over Greece and the prospect for slower growth in China, the world’s second biggest energy consumer, weighed on the demand outlook for energy.
Brent crude was down $1.25 to $111.01 a barrel. U.S. crude fell $1.45 to $94.68 a barrel.
Prices for Brent crude have fallen 6.2 percent and for U.S. crude 8.4 percent in the two weeks ended Friday.
Gold prices also fell, as the political deadlock in Greece fueled risk aversion and put pressure on the euro.
Spot gold prices was down $15.83 to $1,563.60 an ounce, after earlier hitting a session low of $1,556.61 an ounce, its lowest since December 30.
The euro fell 0.54 percent to $1.2845. The U.S. dollar index .DXY was up 0.4 percent at 80.585, and against the Japanese yen, the dollar was down 0.06 percent at 79.87 yen.
Analysts said the euro could hit the 2012 low of $1.2623 in coming weeks, with some forecasting a break toward $1.20.
