Earlier versions of this story, including in the print edition of Friday's Washington Post, mistakenly said that investors drove down the value of the dollar by investing in U.S. securities. The move to Treasury securities drove the value of the dollar up.
Overseas markets respond to U.S. jobless claims, fear of E.U. economic woes
Friday, February 5, 2010; 12:42 PM
Overseas stock markets dropped sharply for a second day Friday amid concern over the strength of the economic recovery and mounting government deficits in some European countries.
Major European indexes were down by roughly 2 percent at midday, following a sell-off that hit U.S. markets Thursday and continued overnight in Asia.
U.S. stocks opened essentially flat, however, following a mixed jobs report that showed both a loss of jobs and a drop in the unemployment rate, and were down slightly at midday.
Persistent high unemployment in the U.S. and weak corporate earnings were partly to blame for Thursday's sell-off on Wall Street and the declines around the globe. But so was recognition of the mounting public debt problems faced by Greece, Spain and Portugal -- and the risk that those deficits could test the strength of both the shared European currency and the union behind it in the event a bailout is needed.
The recently elected government of Greek Prime Minister George Papandreou is struggling to reduce its huge budget deficit, which hit 12.7 percent of gross domestic product last year. Despite a televised Tuesday-night appeal for unity by Papandreou, Greece's biggest union approved a mass strike Thursday to protest spending cuts, and tax collectors began a 48-hour walkout, raising doubts about the government's ability to fulfill its plans.
In India on Friday, Papandreou told reporters that the plan he has developed to slow spending is "credible" and merely needs time to work, news services reported. The Greek leader is under pressure from public employee unions after promising to curb wage growth and retirement benefits, and said he did not think other steps were needed at this time.
Markets, however, seemed doubtful, forcing up interest rates on Greek bonds and on the premiums demanded to ensure them.
On Wall Street Thursday, the Dow Jones industrial average plunged 2.6 percent despite several pieces of upbeat domestic economic data, finishing just two points above the 10,000 threshold it first crossed in 1999. Broader U.S. and foreign market indices fell about 3 percent, and oil prices fell 5 percent. The euro fell to its lowest level against the dollar since May.
Investors fled to the relative safety of U.S. Treasury securities and drove up the value of the dollar, which could dampen the global appetite for U.S. exports needed to boost economic recovery in the United States.
Driven by concerns that stubborn 10 percent U.S. unemployment levels would further slow the recovery, President Obama met with congressional leaders Thursday to discuss a new stimulus program as the Senate prepared to roll out an $81 billion jobs bill.
Some analysts said investors were taking profits in U.S. markets after stock advances in recent months. "We ran up way too fast," said Thomas Francis Nordby, a market strategist for Lind-Waldock. "There is a great deal of fear and anxiety back in the market."
Goldman Sachs, which was an underwriter of a successful $11 billion Greek government bond offering Jan. 25, nonetheless issued a downbeat report Thursday about the country's prospects, saying it was "facing both liquidity and (potentially) solvency issues" and would need to borrow from "non-commercial sources."