World stocks plunge on eurozone debt spread fears
Stocks around the world plummeted Tuesday as investors fled the markets on fears that the mounting Greek debt crisis could spread to other weak eurozone economies, possibly affecting the global economic recovery.
Rumors are running wild that the 110-billion-euro (145-billion-dollar) bailout pledged by the eurozone and the IMF would not be enough to rescue the Greek markets and the crisis could spread to such countries as Ireland, Spain and Portugal.
The fears sent investors fleeing global markets as they foresaw a possible derailment of the fragile global economic recovery.
Stocks in the United States and Europe were hit the hardest. The New York Dow Jones Industrial Average fell 225 points, its biggest drop in three months.
London, Paris, Frankfurt, Lisbon and other European markets also saw drops, with the Madrid stock exchange taking the biggest hit as stocks plunged 5.4 percent by the close.
The euro, the single European currency, lost two cents against the dollar to reach its 12-month low, as investors fled to the relative safety of the U.S. currency.
The wave of fears came as Greece witnessed mounting public outrage at the government's austerity measures. A nationwide general strike took place Wednesday in a test of the government's resolve to push through the unprecedented austerity cuts needed to avert the fiscal meltdown.
Among the major measures, the government is to cut bonus pay for civil servants and retirees, raise the retirement age for women to 65, and others. Germany, which will foot the biggest share of the bailout, has warned the Greek government that loans could be halted if it does not adhere to the plan.
Greece turned to the eurozone and IMF for help after its borrowing costs surged on critical bond markets as the scope of its debt and public deficit crisis became fully apparent.
On Tuesday, Greece's cost of borrowing through 10-year bonds rose to nearly 9.4-percent interest, up from just under 8.5 on Monday.
Even with the bailout package, many investors do not believe Greece could live through the crisis and fear that the country's troubles could trigger a knock-on effect elsewhere in Europe.
There were rumors that Spain was asking for a 280-billion-euro lifeline, forcing Spanish Prime Minister Jose Luis Rodriguez Zapatero to come out to quell the rumors, saying they were "absolute madness."
Spain's borrowing costs are also on the rise, and stood at close to 4.1 percent for its 10-year bonds on Tuesday. That was up from 3.8 percent in late March.
Portugal is also seen as likely to plunge into a debt crisis.
Analysts, however, do not see the market plunge as a surprise, arguing that investors are always on alert for anything that could disrupt economic recovery. They have warned for weeks that stocks were due for a retreat, amid concerns that stocks are overheated.
Some analysts are optimistic, saying the troubles in Greece are not serious enough to disrupt the global rebound, although they do worry that this small hole in the economy will become bigger.
[Source: Xinhua, Beijing, 05May10]
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