European Debt Fears Flare Up; Stocks Decline in Volatile Trade

By Adam Samson Markets FOXBusiness

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The Dow fell into negative territory on Wednesday morning after worries over Europe's sovereign debt crisis sparked volatile trading. 

Today's Markets

As of 10:50 a.m. ET, the Dow Jones Industrial Average fell 63.1 points, or 0.56%, to 11,044, the S&P 500 dipped 4.3 points, or 0.36%, to 1,168 and the Nasdaq Composite climbed 1.4 points, or 0.05%, to 2,533. 

American markets have been highly-sensitive to developments from the from the other side of the Atlantic as market participants have worried that Europe's sovereign debt crisis may pose a threat to the global financial system.  

Reports from traders saying Austria was unable to back a key financial stability facility initially sent the blue chips diving 111 points in a flash.  However, the markets came back considerably after news broke that the vote in Austria was, in fact, delayed, and not rejected outright.  

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 "It should be possible to convene a special session at the end of September or early October. It depends on the parliament," Reuters quoted a finance ministry spokesman as saying. "This can cause a delay but cannot endanger the decision."

Moody's slashed the credit rating of two major French banks, Societe Generale and Credit Agricole, on Monday amid concerns over their exposure to Greek sovereign debt, which initially pressured European markets. 

However, commentary from European Commission President Jose Manuel Barroso suggesting it would present options for developing a so-called euro bond helped ease the tensions.  A euro bond, analysts say, would likely be issued and backed by all 17 countries in the euro bloc.  

This would be beneficial to struggling peripheral countries such as Greece and Portugal because stronger economies would essentially be underwriting the debt.  Germany, the region's biggest economy, has strongly objected to such bonds recently, and a ruling by its Federal court would make it a difficult measure to pass. 

The pace of major economic data releases is the heaviest on Wednesday and Thursday this week. Inflation at the wholesale level was unchanged in August, compared with expectations of a 0.1% decline. Excluding the food and energy components, prices were up 0.1%, a slightly smaller gain than the 0.2% economists forecast. A more closely-watched report on consumer inflation is expected to be released on Thursday. 

Retail sales were also unchanged for the month, a weaker reading than the 0.2% gain economists anticipated.  Analysts will be looking to what extent Hurricane Irene and growing economic headwinds hit sales by companies like Target (TGT) during the important back-to-school season. 

Business inventories climbed 0.4% in July, compared with expectations of a 0.5% rise.  Sales, meanwhile, edged higher by 0.7% on the month. 

In currencies, the euro gained 0.29% against the U.S. dollar, while the greenback fell 0.12% against a basket of world currencies. 

Energy markets extended losses on a mixed inventor reports.  Crude inventories tumbled 6.7 million barrels, a much bigger fall than the 3.1 million analysts forecast.  Gasoline stocks, however, rose 1.9 million barrels compared with estimates of a 500,000 barrel drop. 

Light, sweet crude fell $1.82, or 2%, to $88.42 a barrel.  Wholesale RBOB gasoline fell 6 cents, or 2%, to $2.67 a gallon. 

Gold slipped $5.50, or 0.3%, to $1,824 a troy ounce.  The yield on the benchmark 10-year Treasury note increased slightly to 2.017% as investors have moved back into equity markets this week. 

Prices at the pump edged slightly lower overnight.  A gallon of regular costs $3.63 on average nationwide, up from $3.59 last month, and well higher than the $2.72 drivers paid last year, according to the AAA Fuel Gauge report. 

Foreign Markets

The English FTSE 100 climbed 0.7% to 5,210, the French CAC 40 climbed 0.07% to 2,897 and the German DAX jumped 1.5% to 5,241. 

In Asia, the Japanese Nikkei 225 slid 1.1% to 8,519 and the Chinese Hang Seng edged 0.08% higher to 19,045. 


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