Stocks slump as Greek crisis turns violent

Courtesy of Yahoo Finance:

A violent protest against the Greek government’s latest austerity package hit stocks hard Wednesday and sent the euro sliding over a percent against the dollar.

With hundreds of protesters clashing with riot police and tear gas blanketing Athens’ main Syntagma Square, investors are fretful that Greece’s debt crisis is spiraling out of control. Reports that the Socialist government, which is led by George Papandreou, has launched power-sharing talks with the main opposition conservatives has only added to the uncertainty.

“Eurozone ministers continue to debate the details of a multi-billion euro bailout package amid a backdrop of protests, police clashes and a general strike,” said Will Hedden, a sales trader at IG Index.

In Europe, the FTSE 100 index of leading British shares was down 0.8 percent at 5,758 while Germany’s DAX fell 1.1 percent to 7,126. The CAC-40 in France was 1.3 percent lower at 3,816.

In the U.S., the Dow Jones industrial average was down 0.6 percent at 12,007 while the broader Standard & Poor’s 500 index fell a similar rate to 1,280.

Unsurprisingly, Greek shares took an even bigger battering, closing 1.9 percent lower at 1,243.

The euro was suffering badly, too. The fear is that the austerity measures won’t get passed in Parliament, meaning that the country will struggle to get the next tranche of its current bailout facility, without which it will probably default. They’re also necessary for the country to get a second bailout.

However, there are some concerns that the measures may fail to get through and that could potentially result in early elections.

Meanwhile, eurozone finance ministers have so far failed to come up with a united approach on how to get the private sector involved in helping the country — a prerequisite for a second bailout.

“Increasingly it looks hard for the Europeans to agree a deal before July,” said James Nixon, an analyst at Societe Generale. “The problem is that time just makes it ever more apparent that Greece is failing to implement and achieve its targets under the current program.”

By late afternoon London time, the euro was down 0.9 percent at $1.43.

As well as Greece’s debt crisis, investors have recently been spooked by a run of soft economic data, which have raised concerns that the global economic recovery is slowing down sharply.

U.S. industrial production figures Wednesday did little to reassure investors over the U.S. economy, despite showing a modest 0.1 percent increase in May.

“The evidence of a slowdown in manufacturing continues to accumulate,” said Steven Ricchiuto, chief economist at Mizuho Securities.

Earlier, Japan’s Nikkei 225 stock average closed up 0.3 percent to 9,574.32, with Honda Motor Corp. gaining 2 percent a day after it announced that vehicle production in Japan is expected to be back at nearly normal levels by later this month and, outside of Japan, by August or September. Japanese manufacturing was disrupted by a huge earthquake and tsunami on March 11 but analysts say the recovery at Honda and other Japanese automakers has been remarkable.

Meanwhile, South Korea’s Kospi rose, by 0.5 percent to 2,086.53 but other markets fell on expectations that China’s central bank will go ahead with at least one more interest rate hike this month or next. On Tuesday, China’s central bank lifted the ratio of funds banks must set aside as reserves by a half point.

“The reserve requirement increase by China yesterday will be followed by additional rate hikes and raises the probability further of a slowdown in China in the second half of the year,” said Derek Halpenny, an analyst at The Bank of Tokyo-Mitsubishi UFJ.

Hong Kong’s Hang Seng dropped 0.7 percent to 22,343.77, while the Shanghai Composite Index lost 0.9 percent to 2,705.43.

Worries over the pace of the global recovery continued to weigh on oil prices. Benchmark oil for July delivery was down 11 cents at $99.35 a barrel in electronic trading on the New York Mercantile Exchange

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