Global stocks gyrate wildly; sell-off resumes in markets

NEW YORK—Back to reality for the stock markets—and back down.

Negative investor sentiment in the United States spilled to Asia and then Europe as markets gyrated wildly amid concerns about America’s bleak economic prospects and fast-moving rumors about a sovereign rating downgrade of France as well as talk doubting the health of French banks.

The three major rating agencies later reaffirmed France’s AAA credit rating, and said its outlook was stable. Even so, investors remained jittery about the big exposure of French banks to a worsening of Europe’s government debt crisis.

The fear is that if European governments, particularly Italy and Spain, default on their bonds, it will hurt the European banks that own them. That could start a chain reaction that hurts the United States, because large US banks own European bank debt.

A day after the major US stock indices surged 4 percent higher, the Dow Jones industrial average closed down 4.6 percent, or 519 points, on Wednesday. By points, it was the ninth-steepest decline for the market. The Dow has now lost more than 2,000 points in less than three weeks.

The Dow was down more than 300 points within minutes of the opening bell. It recovered some of that loss, then drifted steadily lower in the last two hours.

The market has traded that way for two weeks, lurching up and down. The most extreme example was Tuesday, when the Dow swung more than 600 points in the one hour and 45 minutes after the Federal Reserve’s statement it would keep interest rates super low for the next two years.

The S&P 500 also finished the day down 4.4 percent, and the Nasdaq composite index by 4.1 percent.

The stomach-churning highs and lows on Wall Street are reminiscent of the fall of 2008, the depths of the financial crisis, when swings of 800 or even 1,000 points in day were not unheard of.

Stock futures, however, indicate the US market will open higher later Thursday.

High-frequency trades

Computerized trading systems—programmed to analyze charts, capitalize on the tiniest changes in price and execute trades with no human intervention—are making the market rougher.

High-frequency trading programs make up about half of the trades in a normal market day but 70 percent or more on a volatile one. The programs pounce on stock changes to make just slivers of a penny but do it so often that it adds up to real dollars.

Other investors also use charts and market indicators to make trades based on market momentum. The bet is that if the market is rising, it will keep rising, and if it’s falling, it will keep falling.

More investors are turning to this strategy because the sudden slowdown in the economy has left them unable to judge companies based on their fundamentals, like projected profits. The more people use a momentum strategy, the faster the decline.

Asia-Pacific region

On Thursday, markets in the Asia-Pacific region continued to wobble as investors wrestled with conflicting news about the health of major European banks and the weakening global economy.

Japan’s Nikkei 225 index sank 1.2 percent, wiping out gains of the previous day. Hong Kong’s Hang Seng index stumbled 1.7 percent. South Korea’s Kospi, vacillating in and out of positive territory, was down 0.2 percent. Australia’s S&P/ASX 200 fell 0.8 percent after earlier dropping about 2 percent.

A few markets eked out gains. China’s Shanghai Composite Index added 0.4 percent. Benchmarks in New Zealand, India and the Philippines also gained.

European shares

European shares turned negative in morning trade on Thursday as banking shares gave up early gains, with French banks coming under renewed pressure on concerns about their outlook.

At 1003 GMT, the FTSEurofirst 300 index of top European shares was down 0.3 percent at 907.34 points after rising as high as 932.34, while the European banking index was down 1.4 percent after gaining as much as 3.7 percent earlier.

Societe General, France’s second biggest bank, dropped 5.1 percent after falling as much as 23 percent in the previous session on rumors about the French bank’s financial solidity, all of which it had denied. Credit Agricole was down 2.2 percent, while BNP Paribas fell 6.2 percent.

“The market is in a phase of extreme volatility today so any news, even if it is not confirmed, is believed to be true,” said Dominique Dequidt, fund manager at KBL Richelieu investment firm in Paris.

Flight to gold

The benchmark MSCI world equity index had slipped into bear market territory earlier this week by falling more than 20 percent from its three-year high in May.

As investors dumped equities and fled to safer havens, the price of gold topped $1,800 an ounce for the first time.

Some investors view gold as a safer bet. Its value, unlike that of a currency, such as the US dollar, doesn’t hinge on whether countries can make their bond payments, or on the vigor of their economies.

December gold contracts backed off their highs, and closed up about $41 at $1,784 an ounce after reaching a record $1,801 an ounce earlier in the day on the New York Mercantile Exchange.

Gold prices have shot past a series of milestones over the past two years. Gold was trading at about $900 in the summer of 2008, before the financial crisis unfolded that year. It first passed $1,600 in late May. Reports from AP and Reuters