(Bloomberg News) U.S. stocks tumbled, erasing most of yesterday's rally, and Treasuries rose for a third day amid concern the European sovereign debt crisis is worsening. The euro weakened against 11 of 16 major peers, dropping 1.3 percent to $1.4186.
The Standard & Poor's 500 Index sank 3.7 percent to 1,129.73 at 10:26 a.m. in New York following the gauge's biggest jump in more than two years yesterday, when it rebounded from its worst loss since 2008. The Stoxx Europe 600 Index plunged 3.5 percent to a two-year low as Paris-based lender Societe Generale SA retreated 16 percent. The 10-year Treasury yield fell 10 basis points to 2.15 percent after touching a record low of 2.03 yesterday. Costs to protect the government debt of Greece, Italy, Spain and France rose.
Central banks are fighting to prevent a recession, with Federal Reserve Chairman Ben S. Bernanke vowing yesterday to keep borrowing costs at an all-time low to revive a recovery that's "considerably slower" than expected. People familiar with the transactions said the European Central Bank bought Italian and Spanish bonds. Switzerland's central bank said today it will "significantly" increase the supply of liquidity to banks.
'Spiral Down'
"It's a spiral down until it stops," Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, which manages $1.2 billion, said in a telephone interview. "We're going through these constant day-to-day battles over Europe's debt crisis, a downgrade in the U.S. and a weakening economy. There's no positive sentiment regarding a light at the end of the tunnel."
Financial shares led losses today, with Bank of America Corp. and Citigroup Inc. dropping more than 8 percent as 80 of 81 companies in the S&P 500 Financials Index retreated. Walt Disney Co. and American Express Co. slid 6 percent or more to lead declines in all 30 stocks in the Dow Jones Industrial Average, which plunged 425 points.
The S&P 500 rallied 4.7 percent yesterday, rebounding from its worst slump since the bear market in 2008, after the Fed announced plans to keep its benchmark rate at a record low through mid-2013 and said it considered other tools to bolster economic growth. Six companies in the index are due to release results today, including News Corp. and Cisco Systems Inc.
European Shares
Five stocks fell for each that gained in the Stoxx 600. Intesa Sanpaolo, the Italian lender, and French bank BNP Paribas lost more than 10 percent. The cost to insure French government debt against default rose seven basis points to a record 168 basis points, according to CMA.
The yield difference between two- and 10-year Treasuries was near the narrowest since October, underscoring concern about the pace of the economic recovery. The government sells $24 billion of 10-year securities today after yesterday's auction of three-year securities drew the lowest yield since records began in May 1981 in the first note sale since Standard & Poor's cut the U.S. debt rating on Aug. 5.
"The markets are going through massive volatility and it's not surprising because we are in uncharted water, for the economy and for policies, and therefore for markets," Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., the world's biggest manager of bond funds, said in a Bloomberg Television interview. "So sentiment is a big issue and you get these massive moves."
The Spanish 10-year yield fell five basis points to 5.04 percent and Italian yields decreased seven points to 5.11 percent. Italy sold 6.5 billion euros ($9.4 billion) of 366-day bills, with the average yield at 2.959 percent, compared with a yield of 3.67 percent at the previous sale on July 12.