Most major global equity indexes fell and safe-haven Treasuries rose on Friday as concerns lingered before the weekend that troubles in U.S. credit markets might spread.
U.S. stocks posted their biggest weekly decline in three months while investors fled to safe-haven U.S. government debt amid market uncertainty, snapping a six-week string of gains in the benchmark 10-year Treasury yield.
The dollar fell to a two-week low against the euro and a six-week trough against the British pound, as lower Treasury yields reduced their appeal to foreign investors.
Caution has been evident in global equity markets this week after Wall Street banks unloaded positions in two Bear Stearns Cos. hedge funds heavily invested in subprime home loans, reigniting concerns about a wider fallout.
Bear Stearns said on Friday it will provide up to $3.2 billion in financing to bail out a struggling hedge fund that it manages, but a second fund is still working out a restructuring plan with creditors.
The Dow Jones industrial average ended the session down 183.31 points, or 1.35 percent, at 13,362.53. The Standard & Poor's 500 Index was down 19.50 points, or 1.28 percent, at 1,502.69. The Nasdaq Composite Index was down 28.00 points, or 1.07 percent, at 2,588.96.
All three indexes also fell for the week, with the Dow down 1.96 percent, the S&P down 1.94 percent and the Nasdaq down 1.44 percent, based on the latest available data.
This shows that the subprime market is not some funny little area, this is serious stuff and has the potential of upsetting a lot of apple carts, said Gary Shilling, president of portfolio manager A. Gary Shilling & Co. in Springfield, New Jersey.
The Morgan Stanley Capital International index of world equity markets slipped 9.42 points, 0.6 percent, to 1,600.90
European stocks ventured into negative territory after Germany's Ifo economic research institute said its business climate index dropped more than expected in June.
The FTSEurofirst 300 index was down 0.3 percent to 1598.81. In Asia, Japan's Nikkei shed 51.67 points to close at 18,188.63.
U.S. Treasury debt prices rose slightly as Wall Street stock indexes sank deeper throughout the day.
Basically it looks like a flight-to-quality bid, says Don Kowalchik, debt strategist at A.G. Edwards & Sons in St. Louis.
Most investors have also become cautious ahead of next week's Federal Reserve policy meeting. Wall Street widely expects the Fed to leave the federal funds rate unchanged at 5.25 percent, but signs of reviving economic growth are expected to keep inflation the predominant issue for policy-makers.
Benchmark 10-year Treasury notes were up 11/32 in price for a 5.14 percent yield, down from about 5.18 percent late Thursday. The benchmark yield on the 10-year German government bond, which moves inversely to prices, edged down to 4.63 percent from 4.65 percent on Thursday.
The Swiss franc surged on renewed speculation the Swiss central bank will push official interest rates higher, sparking some concern that central banks may be trying to disrupt a popular but risky strategy known as the carry trade.
However, scavenging for more yield was the main focus in currency markets as the yen fell to a 4-1/2-year low against the dollar and a record low against the euro.
The dollar fell to a two-week low against the euro and a six-week low against the British pound losing ground as lower Treasury yields offered less of an appeal to foreign investors.
The euro rose as high as $1.3468, while the pound rose to $1.9996. The dollar fell 1 percent from late Thursday to 1.2287 Swiss francsthe largest decline against the franc in two months.