NEW YORK Stocks on major world markets fell and benchmark U.S. government bond yields hit all-time lows on Tuesday as worries about Britain's exit from the European Union pushed sterling to a fresh 31-year low, triggering a scramble for the safest and most liquid assets.
Investor confidence was undermined by the Bank of England's warning on the economic risks of "Brexit" and its steps to ensure British banks keep lending, as well as by news of a decline in U.S. factory orders and reports of mixed manufacturing and service sector activity in Asia and Europe.
Bank of England governor Mark Carney said global uncertainty could persist for some time and Chinese Premier Li Keqiang said it could be hard to sustain 6.7 percent growth in the second quarter.
Worries about Italy's banking sector creating larger problems in the EU also weighed on risk sentiment. Banks have been undercut by a spate of non-performing loans and there is a looming threat that Prime Minister Matteo Renzi will resign if he loses a referendum in October on constitutional reform.
Italy's bank sector index .FTIT8300 fell 1.8 percent on Tuesday and has fallen 30 percent since the "Brexit" vote on June 23, bringing its losses so far this year to 57 percent.
"The Italian banking system is very shaky and there are noises coming out of Rome that this needs to be dealt with on Italy’s terms and not on the EU’s," said Joe Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey. "That’s serious business."
Investors bought safe-haven assets as a result like U.S. government debt and the Japanese yen, pushing 10-year Treasury yields as low as 1.357 percent US10YT=RR and the yen JPY= up 1.0 percent against the U.S. dollar.
Government bond yields around the globe fell, with Swiss yields CH50YT=RR negative all the way out to 50 years and British GB10YT=RR, German DE10YT=RR and Japanese JP10YT=RR 10-year yields at or near their lowest on record.
"People are going to be cautious. They are still keeping an eye on the UK and probably don't want to over-commit here," said John Callany, chief economic strategist at LPL Financial in Boston.
Wall Street stocks fell with the Dow Jones industrial average .DJI down 154.16 points, or 0.86 percent, to 17,795.21, the S&P 500 .SPX off 21.35 points, or 1.02 percent, to 2,081.6 and the Nasdaq Composite .IXIC slipping 62.49 points, or 1.29 percent, to 4,800.08.
MSCI's gauge of global stocks .MIWD00000PUS, which tracks markets in 45 countries, dropped 1.2 percent.
European shares .FTEU3 fell 1.53 percent, dragged down by weaker commodity stocks and Italian bank shares.
Sterling GBP= suffered, falling as much as 2 percent to a low of $1.3001, its lowest since 1985.
The euro EUR= also fell, losing 0.6 percent against the dollar to $1.1086.
Crude oil dipped below $48 a barrel as concern about a potential slowdown in economic growth that would weigh on demand trumped supply outages in Nigeria and other exporting nations.
Brent crude LCOc1 was down 4.55 percent at $47.84 a barrel and U.S. crude CLc1 dropped 5 percent to $46.53 a barrel. [O/R]
(Reporting by Dion Rabouin; Editing by James Dalgleish)
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