Stocks dropped on Tuesday, driving the S&P 500 to the biggest two-day slump in a month, on concern that Europe’s bailout for Greece is in jeopardy.
Equities declined after Greek Prime Minister George Papandreou scheduled a vote on the plan but then pared their retreat following a report quoting a Greek Socialist Party official saying the referendum is “basically dead.”
The Dow Jones industrial average closed down 297.05, or 2.48%, at 11,657.96; and the S&P 500 fell 35.02, or 2.79%, to close at 1,218.28. The S&P 500 has fallen 4.3% in two days. The Nasdaq composite closed down 77.45, or 2.89%, at 2,606.96. All numbers are preliminary.
“I just don’t get it,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust, said in a telephone interview. “A Greek referendum is a very risky proposition. Everybody thought last week that this crisis was behind us on a near-term basis, but Europe is going to be front and center.”
Greece’s referendum poses a threat to financial stability in the eurozone and increases the risk of a “disorderly” default, Fitch Ratings said. Mr. Papandreou’s unexpected announcement threatens to overshadow a Group of 20 summit Thursday and Fridayin Cannes, France. European leaders had designated the talks as a stage to present their plan to stamp out the crisis and end the threat to the global economy.
German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks about Greece on Tuesday and called on Europe to implement the package of measures thrashed out in Brussels last week. The plan, designed to aid Greece and stem the wider debt crisis, is “more necessary than ever today,” they said in a joint statement issued in Berlin and Paris.
Volatility indexes surged as the benchmark European gauge rose the most in two days since May 2010. The VStoxx index, which measures the cost of Euro Stoxx 50 index options, rose 22% to 42.96, extending its two-day increase to 37%. The Chicago Board Options Exchange Volatility index, or VIX, soared 15% to 34.46, bringing its two-day gain to 41%.