World stocks tumble on Egypt unrest, oil jumps

Last Updated 29 January 2011, 06:39 IST

Money managers, who in recent months had been accelerating moves into riskier assets, dumped stocks and piled into safe-haven investments like U.S. Treasuries, the dollar and gold as non-stop media coverage of skirmishes between protesters and Egyptian police overwhelmed all other news.

Wall Street's benchmark S&P 500 index suffered its biggest one-day loss in six months.

Some said the sudden eruption of violence could spur a longer-term sell-off after a strong rally in riskier assets like stocks and emerging markets.

"I think the next two to three weeks, the crisis in Egypt and potentially across the Middle East might be an excuse for a big sell-off of 5 percent to 10 percent," Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati.

Traders and investors fear the protests could spread across the oil-rich region and lead to disruptions to Middle East commerce. Global political pressure could also heat up because of the security threat posed to Israel by deepening instability to a key regional ally.

U.S. crude futures surged more than 4 percent.

U.S. Treasury debt, gold and Swiss francs, all traditional safe-haven investments, benefited from the sudden shift in market sentiment. Gold prices jumped 2 percent.

"This could really encompass the region. Egypt is really the pivot point in the entire Arab world and has implications for things like the price of oil," said Dan Dorrow, head of research at FX advisory and execution firm Faros Trading in Stamford, Connecticut.

"If Monday looks a lot like today, then the political risk premium will swamp any kind of of central bank and economic fundamentals and we could see more safe-haven moves to the Swiss franc."

On Wall Street, shares fell from 29-month highs and the CBOE Volatility Index, or VIX, a broad measure of market anxiety, soared 23 percent.

Disappointing results by high-profile companies, including Amazon.com and Ford Motor Co, added to the negative sentiment caused by the turmoil in Egypt.

Energy stocks declined despite the surge in oil prices as uncertainty over the weekend developments in Egypt and anemic growth in Chevron's oil reserves kept investors jittery.

The Dow Jones industrial average dropped 166.13 points, or 1.39 percent, to 11,823.70. The Standard & Poor's 500 Index slid 23.19 points, or 1.78 percent, to 1,276.35 and the Nasdaq Composite Index fell 68.30 points, or 2.48 percent, to 2,686.98.

Nearly 10 billion shares traded on the Nasdaq, New York Stock Exchange and the American Stock Exchange for the heaviest trading day of the year, and topping last year's estimated daily average volume of 8.47 billion shares.

"The market response to earnings in Microsoft, Amazon and Ford is disappointing," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "Then you throw in Egyptian riots possibly spreading ... we're going into a weekend where anything is possible in Egypt," he said.

U.S. crude for March delivery ended up $3.70, or 4.32 percent, to settle at $89.34 per barrel on the New York Mercantile Exchange. Spot gold rose $24.39 to $1,335.50 an ounce.

Benchmark 10-year Treasuries note yields dropped 0.05 percentage point to 3.34 percent as investors also sought safety in U.S. government securities.

The political unrest overshadowed economic data in the United States that showed a recovery was on track.

U.S. gross domestic product data for the final quarter of 2010 showed the biggest gain in consumer spending in more than four years, and with strong exports, offered the clearest signals yet that a sustainable recovery is under way.

Ford tumbled more than 13 percent after reporting a steep drop in its quarterly profit after a charge for debt payments. "Ford results were pretty ugly," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

Amazon.com Inc's revenues missed expectations late Thursday. Shares of the online retailer fell 8 percent.

In Europe, the FTSEurofirst 300 index fell 0.95 percent, reflecting worry about Suez Canal trade, crucial to Europe's imports of oil and Asian goods.

Japan's Nikkei average ended down 1.1 percent -- still weighed by a sovereign debt rating downgrade -- while the MSCI world equity index dropped 1.44 percent.

Emerging market stocks fared worse, falling 1.5 percent.

Israeli ADRs tumbled, as the country has the most liquid market in the Middle East and potentially faces the biggest security threat from Middle East instability. The BNY Mellon index of leading Israeli ADRs slid 1.94 percent.

In currencies, the dollar gained against a basket of major trading-partner currencies, with the U.S. Dollar Index up 0.53 percent at 78.142. The euro declined 0.82 percent at $1.3613.

"If the Mubarak government falls, the next few days could see some heavy U.S. dollar and Swiss Franc safe-haven buying," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

Against the Japanese yen, the dollar fell 0.89 percent at 82.12 yen.

(Published 29 January 2011, 06:39 IST)

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