Global stock markets took a battering Monday as investors fled for the security of other assets amid concerns that Europe's debt crisis could engulf larger economies and ahead of another round of discussions over the U.S. debt ceiling.
While stocks were down sharply, gold and the Swiss franc benefited _ both are considered good places to park money in times of uncertainty. The dollar also benefited from its relative status as a safe haven despite worries that the U.S. government may not agree to raise the debt ceiling, which could raise the prospect of a default.
The latest round of jitters over Europe's debt crisis has been reinforced by a skeptical reaction to last Friday's bank stress tests as well as uncertainty over an EU leaders summit this week, called to discuss another bailout for debt-ridden Greece.
Though the stress tests may have met with less scorn than an equivalent exercise last year, the response to the assessment has done little to ease worries that Europe's debt crisis could soon overwhelm the eurozone and that big economies like Italy and Spain may suffer as bond market investors lose faith in the ability of either country to deal with its debts.
The yields, or interest rates, on their bonds rose again. That means investors are asking for higher and higher premiums to lend them money _ a sign they consider the countries an increasingly bad risk. Those contagion concerns are also evident in the performance of the euro, which is falling across the board, and not just against the safe haven Swiss franc. By early afternoon, the euro was down 0.7 percent at $1.4027.
On Friday, the European Banking Authority said only eight of the 90 EU banks it assessed failed and revealed that it didn't model what would happen if a eurozone country defaulted on its debt. Analysts thought that was particularly surprising given concerns that Greece may do exactly that if current plans to get the banks involved in the second bailout prompts the credit rating agencies to slap a default rating on the country.
The prevailing view in the markets is that the tests didn't give a true picture of the banks' health and that they wouldn't be pushed to raise enough capital to weather a deepening crisis.
"After having the weekend to digest the results of the EU bank stress tests, traders are also less than impressed by the lack of a Greek default inclusion," said David Jones, chief markets strategist at IG Index. "All of this means it is firmly a 'risk-off' day so far."
In Europe, banks were in the forefront of the stock market retreat. Germany's DAX was down 1.3 percent at 7,127 while the CAC-40 in France fell 1.5 percent to 3,670. The FTSE 100 index of leading British shares was 1.2 percent lower at 5,776.
Wall Street was poised for falls at the open though its retreat may have more to do with Washington's own debt problems _ Congress must raise the limit on how much debt the U.S. can accumulate before Aug. 2, or Washington could be forced to default on some of its obligations.
Dow futures were down 0.7 percent at 12,362 while the broader Standard & Poor's 500 futures fell 0.8 percent at 1,304.
While stocks are in the doldrums, other financial assets are gaining ground, most notably gold and the Swiss franc. Gold has struck a new all-time high of around $1,600 an ounce while the Swiss franc posted a new euro high.
Neil Mellor, an analyst at the Bank of New York Mellon, said gold's continued ascent is likely to persist for a while longer "in the absence of any mysterious panacea that dispenses with the prevalent doubts plaguing investors."
Earlier in Asia, South Korea's Kospi slipped 0.7 percent to close at 2,130.48, and Hong Kong's Hang Seng fell 0.3 percent to finish at 21,804.75. Australia's S&P/ASX 200 shed less than 0.1 percent to 4,539.90.
Mainland Chinese shares edged lower amid concerns over inflation will remain high in the coming few months, analysts said.
The Shanghai Composite Index lost 0.1 percent to close at 2,816.69 and the Shenzhen Composite Index dropped less than 0.1 percent to end at 1,232.54.
In the oil markets, prices fell modestly on concerns over the impact on the global economy. Benchmark crude for August delivery down 35 cents to $96.89 a barrel.