U.S. stocks suffered a rout after Standard & Poor's cut its outlook on the U.S. government debt, warning that the U.S. fiscal profile may become meaningfully weaker than that of other triple-A-rated countries if policy makers can't tame the budget deficit. The Dow Jones Industrial Average fell 140.24 points, or 1.14%, to 12201.59, led lower by Bank of America and Caterpillar, which each fell 3.1%.
The Standard & Poor's 500-stock index dropped 1.1% to 1305.14, with energy and industrials stocks taking the hardest hit. At session lows, both measures staged their biggest drop in a month. The Nasdaq Composite fell 1.1% to 2735.38. The ratings firm cut its outlook on U.S. government debt to negative from stable, to account for budget deficits and rising government indebtedness.
The Treasury Department issued a statement contending that S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation. The dimmer debt outlook overshadowed corporate earnings just as reporting season was getting into high gear.
European stock markets ended sharply lower Monday, hit by a double whammy of euro-zone debt worries and news Standard & Poor's Ratings Services had revised its outlook on the long-term credit rating of the U.S. to negative from stable. The Stoxx Europe 600 index slumped 1.7% to end at 273.05, weighed by banking stocks.
Markets in Italy and Greece were among the hardest hit, tumbling almost 3%. The news compounded losses for European stocks, already down on worries over euro-zone debt levels. France's CAC 40 index slid 2.4% to 3,881.24, with AXA SA sinking 5.7%, Credit Agricole SA down almost 5% and Societe Generale SA off 3.9%. Shares of Total SA fell 2.4% after the oil giant was downgraded to underperform from neutral by Credit Suisse.
The German DAX 30 index tumbled 2.1% to 7,026.85, with a 5.1% drop in shares of Commerzbank AG and a 2.6% slide for Deutsche Bank AG. Insurer Allianz SE declined 4.8%. Bucking the negative trend, Infineon Technologies AG rose 1.6% after the company said its second-quarter performance will be better than expected.
In London, the FTSE 100 index fell 2.1% to 5,870.08, with banks such as Barclays PLC off 3.6% and Royal Bank of Scotland Group PLC down 2%. Miners were also weak, with Antofagasta PLC and Anglo American PLC both down 5%, making them the two biggest decliners in the FTSE.
Chinese stocks posted modest gains Monday as investors shrugged off a weekend increase in banks' reserve requirement ratio, while Japanese shares were pressured by a strengthened yen and caution ahead of corporate results.
The Shanghai Composite Index finished 0.2% higher at 3057.33 despite the People's Bank of China's decision Sunday to raise the reserve requirement by 0.5 percentage point to drain more money from the banking system. The PBOC's fourth such increase this year, it led one analyst to say that the end of China's policy tightening was in sight. Most banks ended lower after a roller-coaster ride, with Industrial & Commercial Bank of China sliding 0.6% and Bank of Communications falling 0.7%.
In Hong Kong, Agricultural Bank of China fell 2.2% and China Construction Bank gave up 0.8%. Shares of several Chinese property developers rose on mainland bourses as low valuations attracted investors. China Vanke added 0.7% in Shenzhen, while Gemdale rose 1.9% and Poly Real Estate Group added 1.3% in Shanghai.
In Hong Kong, local property developers extended their recent losing streak on lingering worries about their outlooks, after some banks last week raised their mortgage rates. Sun Hung Kai Properties dropped 1.7% and Cheung Kong Holdings fell 0.9%. Hong Kong's Hang Seng Index fell 0.7% to 23830.31, Japan's Nikkei Stock Average fell 0.4% to 9556.65, South Korea's Kospi gave up 0.1% to 2137.72, Taiwan's Taiex ended little changed at 8714.48, and India's Sensex fell 1.5% to 19091.17.
Base metals closed lower on the London Metal Exchange Monday, after a downward revision to Standard & Poor's outlook on U.S. sovereign debt sent investors in perceived risk-assets scrambling for cover. At the PM kerb close, flagship three-month copper was 2.0% lower at $9,220 a metric ton, its lowest closing price in more than a month.
The most significant losses of the day were seen in lead, which dropped almost 5% to hit a near-one month low of $2,520/ton, before closing at $2,528/ton, down 4.6% on the day. Lead's losses were exaggerated not only by the metal's relatively illiquid market conditions.
Crude oil futures tumbled Monday amid a broad selloff, after ratings agency Standard and Poor's cut its outlook on U.S. government debt to negative from stable, drawing attention to the mounting debt and political gridlock in the U.S. and sending investors running from riskier assets.
Light, sweet crude oil for May delivery settled $2.54, or 2.3%, lower at $107.12 a barrel on the New York Mercantile Exchange.
Brent crude oil for June delivery on the ICE futures exchange settled $1.84 lower at $121.61 a barrel. Gold settled at a record high while silver reached fresh 31-year highs as investor demand for safe-haven assets propelled prices after the S&P move.
The thinly traded April-delivery gold contract settled at a record $1,492.30 a troy ounce, up 0.5% or $7, on the Comex division of the New York Mercantile Exchange. The most actively traded contract, for June delivery, settled at a record $1,492.90 a troy ounce, up $6.90 or 0.5%.