U.S. stocks plunged Wednesday, sending the Standard & Poor’s 500 index toward its biggest slump since August, on concern some European nations might exit the common currency as Italian yields surged to euro-era records.
The Dow Jones industrial average closed down 389.24, or 3.2%, at 11,780.94; the S&P 500 fell 46.81, or 3.67%, ending at 1,229.11; and the Nasdaq composite closed down 105.84, or 3.88%, at 2,621.65. All numbers are preliminary.
The Stoxx Europe 600 index decreased 1.7%, erasing an earlier advance, as the 10-year Italian note yield topped 7% for the first time in the euro era.
“It’s just like a scary movie as it never ends,” Keith Wirtz, who oversees $16.7 billion as chief investment officer at Fifth Third Asset Management, said in a telephone interview. “The overarching problem is that most of the economies in Europe can’t sustain the size of their governments. We’re going to have this headache for a long time to come.”
Wednesday’s equity slump erased the month-to-date gain in the S&P 500. Stocks snapped a five-month losing streak in October on optimism European leaders were taking steps to solve the region’s debt crisis.
Equities extended declines as Handelsblatt newspaper reported that German Chancellor Angela Merkel’s Christian Democratic Union party wants to make it possible for European Union members to exit the eurozone, citing unnamed participants in the discussion. A French government official said there are no plans to shrink the 17-nation eurozone.
Benchmark gauges rose Tuesday as Prime Minister Silvio Berlusconi’s offer to resign boosted optimism Italy would appoint a new leader who can tame the crisis.
“The Greek flu is hitting Italy,” James McDonald, chief investment strategist at Northern Trust Corp., which manages $643 billion, said in a telephone interview. After Mr. Berlusconi’s resignation offer, the market wants to know “who’s going to be the new leadership?” he said. “Until they know the new leadership’s willingness to implement reforms, they are going to require higher compensation through higher yields on Italian bonds. The risk is that this feeds on itself.”
