Wall Street was set to track global equity markets sharply lower on Monday as Spain appeared closer to needing a sovereign bailout and fears grew that Greece may be approaching an exit from the euro zone.
The Spanish region of Murcia looked set to follow Valencia in tapping a government program to keep its finances afloat, while local media reported half a dozen regions were ready to do likewise.
German magazine Der Spiegel cited high-ranking representatives in Brussels saying the IMF may not take part in any additional financing for Greece. Inspectors from the European Commission, European Central Bank and International Monetary Fund arrive in Athens on Tuesday.
Overseas stock and commodity markets fell steeply. European shares lost 2.5 percent, led by euro zone banking stocks, a trend the United States looked set to follow as shares of Morgan Stanley slumped 4 percent in premarket trading.
McDonald's Corp fell 2.5 percent to $89.25 after posting results. Its chief executive officer said the results reflected the slowing global economy (and) persistent economic headwinds.
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It was a wipeout in the overseas markets, said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. We are going to echo that as confidence gets sucked out.
The problem is bigger and more intractable than what happened in (the financial crisis) in '08, he said. You could lose 40 points on the S&P today.
S&P 500 futures fell 20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 203 points and Nasdaq 100 futures sank 32.25 points.
The euro slid to a two-year low against the dollar and a near 12-year trough against the yen, pressured by fears that Spain may eventually need a full sovereign bailout.
Attention has again turned to the potential for a Greece exit from the euro zone. Alexander Dobrindt, a leading German conservative was quoted on Monday saying Greece should start paying half of its pensions and state salaries in drachmas as part of a gradual exit from the euro zone.
We have the Spanish problem very high on the surface here, their 10-year rates are now trading at 7.39 percent and you've got Greece rates starting to rise again, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
Greece is beginning to come back into the headlines on top of Spain and that's what is causing the volatility; there are people out there who think we may be approaching the end game.
Events in Europe looked set to overshadow a slightly better-than-expected U.S. earnings season. As of Friday, with around a quarter of S&P 500 companies reporting, about 70 percent have beaten expectations.
Last week the S&P 500 hit its highest level in 2-1/2 months but weakness on Friday and again on Monday could send it down to around the 1,340 level, which some analysts have flagged as an area of support for the index.