World stocks, euro fall on Greek vote on bailout

NEW YORK: Greece's surprise move to call a referendum on the euro zone bailout deal announced last week rattled investors on Tuesday, sparking a sharp fall in global stock markets and the euro.

US stocks opened sharply lower after the benchmark Standard & Poor's 500 index recorded its best month in almost two decades in October.

Data showing an unexpected slowdown in Chinese manufacturing, combined with news on Monday of the bankruptcy of US futures broker MF Global also hurt appetite for risk-taking, as investors rushed into less risky government bonds.

"The market did not see this Greek referendum coming, which is potentially a killer and could knock the wheels off the bus of the whole (European rescue) plan," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

Greek Prime Minister George Papandreou's announcement late Monday that he will put Greece's bailout to a referendum cast doubt on the euro zone's plan to loan Athens 130 billion euros and arrange a 50-percent write-down on its huge debt.

If Greeks vote against the rescue package, it could result in a disorderly default on their countrry's debt and hamper efforts to contain the euro zone's debt crisis from spiraling into a global crisis.

The referendum is not expected to be held until early 2012, which means uncertainty is likely to continue into year-end.

"The referendum is a bad idea with a bad timing. The post-summit rally is over," said Lionel Jardin, head of institutional sales at Assya Capital in Paris.

The FTSEurofirst 300 index of top European shares was down 3.2 percent and MSCI's all-country world stock index shed nearly 2.0 percent.

Euro zone banks were hammered, with French banks Societe Generale down nearly 14 percent and Credit Agricole down 1O.5 percent.

Earlier, Japan's Nikkei closed down 1.7 percent.

Heavy losses across global stock markets revived safety bids for German Bunds and US Treasuries for a second day.

German Bund futures jumped more than 2 points to 137.88 to its highest level in nearly a month, while prices on benchmark 10-year Treasury notes rose a point, sending its yield down to 1.9 percent.

In the currency market, the euro fell to a near three-week low against the dollar in the wake of the Greek referendum on its euro zone aid pact.

The euro fell to $1.36220, its lowest since October 12 on trading platform EBS and was last at $1.36241, down 1.7 percent.

The US dollar was little changed against the yen, a day after touching a three-month high due to Japan's estimated $65 billion to $75 billion sale of its currency in a bid to curb its speculative rise versus the greenback. The dollar was last at 78.22 yen.

A strengthened dollar and worries about the Greek vote on its aid package hurt oil, gold and other commodity prices.

Brent crude futures in London shed 3 percent at $106.31 a barrel, while spot gold lost 1.7 percent at $1.681.80 an ounce.

Copyright Reuters, 2011