Renewed jitters over Europe's debt crisis and a raft of weak US economic data sparked a rout in global equities on Thursday while driving investors to the safety of gold and US government bonds. Spot gold prices and the yield on benchmark US, British and German 10-year government debt set fresh records as investors dumped stocks and other riskier assets to rush into safe-haven investments for their perceived security.
Spot gold was up 2.1 percent at $1,825.60 an ounce by 3:00 pm EDT (1900 GMT), having hit a record $1,828.50. It is poised to log a 10 percent gain over the last two weeks, its best two-week performance since mid-February 2009. US gold futures for December delivery settled up $28.20 at $1,822 an ounce. Trading volume topped 240,000 lots, the highest this week but below last week's pace.
The numbers spelled mayhem - stocks on Wall Street plunged about 5 percent - but they managed to stay above 2011 lows set last week and most asset prices pulled back from session lows. "For the moment, it is hard to see the markets breaking decisively the spell of uncertainty created by global growth fears, constrained monetary and fiscal policy choices and the lingering European debt crisis," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
A drop in factory activity in the US Mid-Atlantic region to the lowest level since March 2009 unnerved investors, as the data from the Philadelphia Federal Reserve Bank is viewed as a forward-looking indicator of national manufacturing. An unexpected fall in existing US home sales in July and a greater-than-expected rise in new claims for jobless benefits in the latest week added to growing fears that the US economic recovery could be derailed. Aversion to risk swept financial markets. Corporate bonds, industrial commodities and higher-yielding currencies slid, and assets viewed as safe havens, such as gold, government bonds and the dollar, gained.
European equities suffered their biggest daily slide in 2-1/2 years. The FTSEurofirst 300 index of leading European shares fell 4.8 percent to close at 925.19 points, its biggest one-day percentage drop since March 2009. "The market is beginning to price in a recession. The Philadelphia Fed number was an absolute abomination," said Michael Hewson, market analyst at CMC Markets in London.
"Until we get some clear idea of how policy-makers are going to deal with euro-zone sovereign debt problems, it's not getting to get any better." On Wall Street, the three major US stock indexes lost 4 percent to 5 percent. Global stocks, as measured by MSCI's all-country world equity index, tumbled 4.4 percent.
US stocks plummeted in sync with bank shares after The Wall Street Journal reported that regulators were intensifying their review of the US units of European banks. The Dow Jones industrial average was down 419.17 points, or 3.67 percent, at 10,991.04, according to the latest figures.
The Standard & Poor's 500 Index was down 53.15 points, or 4.45 percent, at 1,140.74. The Nasdaq Composite Index was down 131.05 points, or 5.22 percent, at 2,380.43. The sell-off "is rooted in the European banking system," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. "It reflects continued concern that sovereign debt issues indicate we're going to have to bail out all those banks again. And if there's stress in major European banks, it will affect US banks, too."
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