Stocks slump amid Greek debt worries

By msnbc.com news services

Stocks sank Friday as a plan for wage and pension cuts in Greece hit a new obstacle, raising fear the country may not get the aid it needs to avoid a messy default.

The Dow Jones industrial average closed the day down about 89 points, having fallen as much as 145 points earlier in the session.

The leader of the smallest party in Prime Minister Lucas Papademos' coalition government, George Karatzaferis, said he could not vote in favor of a 130-billion-euro bailout agreement Greece needs to avoid default in March.

Although the party has only 15 deputies out of 300, his comments drove nervous investors to sell stocks and the euro ahead of a parliamentary vote on the deal scheduled for Sunday.

Selling was broad on Wall Street. Declining issues outpaced advancing shares by almost 4 to 1 among New York Stock Exchange-listed shares. The CBOE Volatility index, a measure of volatility known as investors' "fear index," spiked about 10 percent, its biggest jump in three months.

That left the benchmark Standard & Poor's 500 Index with its first weekly decline in the past six.

"It's not entirely surprising to see negative news overnight trigger a pretty sharp unwinding of risk," said Omer Esiner, chief analyst at Commonwealth Foreign Exchange in Washington.

"A lot of the uncertainty that has hung over markets for the better part of the last year remains largely in place," he said. "This is a dose of reality for people."

Indeed, stocks have climbed some 7 percent over the last six weeks, capping off a 25 percent rally seen over four months. Optimism hit a crescendo Thursday on hopes Greece would soon receive an second bailout to stave off a default.

"It's perfectly reasonable that we should have a little bit of a pause here," said Phil Orlando, chief equity market strategist at Federated Investors, in New York.

A pre-weekend scramble for safety reversed the previous day's decline in government debt prices.

"It's all about Greek headlines now. Generally speaking, investors don't like being short Treasuries when these things are going on," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment.

Reuters contributed to this report.

Source: http://bottomline.msnbc.msn.com/_news/2012/02/10/10375707-stocks-slump-amid-greek-debt-worries

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