NEW YORK: The euro slumped to five-month lows on Wednesday on worries over Greece’s fiscal woes and global equity markets sold off after China, the world’s growth engine, ordered banks to curb lending to cool its economy.
Crude oil fell below $78 a barrel while copper, a proxy for Chinese growth, shed nearly 2 percent on fears that demand in China will slow as authorities tighten monetary policy.
The US crude contract for February delivery, which expires on Wednesday, fell $1.87 to $77.15 a barrel by 1:46 p.m. EST (1846 GMT). March crude fell $1.78 to $77.54. In London, Brent crude for March delivery fell $1.57 to $76.06 a barrel.
The lending restrictions in China sparked worry about the global economic recovery, knocking down equity markets around the world and pushing the US dollar to a one-month high relative to a basket of major currencies.
A surge of new lending this month in China triggered a series of steps by authorities to rid the financial system of excess cash that can fuel inflation and asset bubbles.
US stocks slipped almost 2 percent before recouping some losses and MSCI’s all-country world index fell 1.9 percent. New US housing starts unexpectedly fell in December, while US producer prices rose 0.2 percent last month. Investors have looked to wider economic data over the past year for signs of economic recovery and a potential rebound in energy demand. European stocks closed down 1.5 percent.
It was the worst day for US stocks so far in 2010, just one day after US and European shares closed at 15-month highs.
The stronger dollar crimped commodity prices while investor unease over a conservative outlook from International Business Machines Corp weighed on technology shares. After midday, the Dow Jones Industrial Average was down 187.88 points, or 1.75 percent, at 10,537.55. The Standard & Poor’s 500 Index was down 18.29 points, or 1.59 percent, at 1,131.94. The Nasdaq Composite Index was down 43.20 points, or 1.86 percent, at 2,277.20.
European stocks also fell on a drop in commodity shares and as banks fell over worries about the sector’s health.
The FTSEurofirst 300 index of top European shares ended 1.5 percent lower at 1,052.53 points.
In currency markets, the euro fell as concerns intensified over cash-strapped Greece’s ability to finance its mounting budget deficit, driving the cost of insuring against a Greek sovereign debt default to a record high.
“Concerns about Greece and the implications for the euro and the euro zone have been the catalyst for the dollar strength,” said John McCarthy, director of foreign exchange at ING Capital Markets in New York. The dollar rose against a basket of major currencies, with the US Dollar Index up 1.16 percent at 78.40.
The euro fell 1.43 percent at $1.4093, and against the yen, the dollar was up 0.11 percent at 91.20.
US gold futures hit a two-week low as the dollar’s sharp rally dampened bullion’s investment appeal as a hedge against paper currency depreciation.
Spot gold prices fell $27.10 to $1110.60 an ounce.
The MSCI Asia-Pacific index excluding Japan eased 1.01 percent, while Thomson Reuters index of regional shares lost 0.4 percent. Japan’s Nikkei gave up early gains to drop 0.25 percent.
“The petroleum markets continue to take much of their guidance from the financial markets, with both the retreat in the equity markets and the firmer US dollar prompting short-term traders to sell petroleum,” said Tim Evans, energy analyst at Citi Futures Perspective in New York.
Book squaring on front-month February crude ahead of expiry was contributing to the day’s volatility, Evans added.
