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May 04, 2010 at 08:00 PM
By Christine Hauer
(C) 2010 The New York Times
The euro fell sharply on Tuesday and major indexes in Europe and the United States tumbled as the sovereign debt crisis in Europe and the risk of contagion continued to hang over the market.
At the close, the Dow Jones industrial average was 225.06 points, or 2.02%, lower, at 10,926.77. The Standard & Poor’s 500-stock index fell 28.66 points, or 2.38%, to 1,173.60, while the Nasdaq dropped 74.49 points, or 2.98%, to 2,424.25.
In London, the FTSE 100 declined 2.56% or 142.18 points, while the DAX in Frankfurt fell 160.06 points to 2.6%. In Paris, the CAC-40 dropped 139.17 points or 3.64%.
Although the 15 other countries in the euro zone and the International Monetary Fund had agreed to give Greece 110 billion euros ($144 billion) in aid over three years, traders said the austerity plan remained a hard sell. Hundreds of Greek demonstrators took to the streets on Tuesday to rail against tough new austerity measures aimed at helping the debt-ridden country stave off economic disaster.
One lingering question is whether the $144 billion is enough to settle Greece’s problems and keep them from spreading.
Investors were also watching Spain and Portugal, which have both had their debt downgraded in the last week. Greek government debt fell Tuesday, with the yield on the 10-year benchmark bond rising 36 basis points to 8.8%. In a sign of spreading nervousness, Portuguese and Spain bond yields also rose Tuesday.
“If there are real sovereign debt risks in Spain that is an issue for all multinational banks,” said Uri Landesman, president of Platinum Partners.
“What is going on in Europe is eventually going to result in defaults,” said Jeffrey Saut, the chief investment strategist for Raymond James. “They Band-Aided over the situation, and I think it is going to be very bad for the European banking complex.”
All of that has hurt the euro, which slipped 1.35% on Tuesday against dollar, trading at $1.3019. At one point, the euro slipped below $1.30.
“The impact of the potential contagion will continue to weigh on the euro in the near term,” Moody’s chief international economist, Ruth Stroppiana, said. “If the Greece situation does spread to Portugal, Spain and elsewhere in the euro zone then the euro would continue to fall. But the situation is still a very serious one.”
Kevin Chau, a currency analyst with IDEAglobal, said the euro could go to $1.25 by the end of the summer, and that others have put it at $1.20.
“I think that it will continue to go down because the problems over in Europe and the structure of the euro is being questioned,” Chau said. “The European members’ will to make the euro work and this whole unity work, is being questioned because of what is going on with Greece.”
