Global markets slump as Greek default fears rise

Global markets have tumbled and the US dollar has soared to a series of 12-month highs against the euro as optimism over economic recovery in the US contrasted with doubts about a successful resolution to the Greek debt crisis.

European stocks, bonds and the euro plunged, triggering a slide on Wall Street that more than erased Monday's 143-point rise in the Dow Jones Industrial Average.

The Dow fell 225.06, or 2.0%, to close at 10, 926.77, its fourth triple-digit move in successive trading days.

Investors' fears have set in about the Greek government's ability to carry out austerity measures required by the aid package. The country is wracked by riots, with both public and private sector workers declaring general strikes.

Other main share indexes fared even worse. The Nasdaq Composite dropped 3.0% to 2424.25, with Apple down 2.9% on anti-trust moves that question arrangements with software developers.

The S&P 500 index declined 2.4% to 1173.60, with all its sectors in the red, led by energy and industrials.

Other markets: Europe, Asia down

Europe’s share slump was led by a sharp decline in Spanish banks on speculation that Spain could be the next country to suffer from a sovereign debt downgrade.

Despite moves by Fitch Ratings and Moody's Investors Service to dispel market rumours of an imminent sovereign debt downgrade, Madrid's IBEX declined 5.4% to 9859.10, hitting lows not seen since last July.

The Athens ASE fell 6.7% to 1729.68 and Lisbon's PSI-20 declined 4.2% at 7097.78. The pan-European Stoxx 600 closed down 2.9% at 253.0.

The UK's FTSE 100, returning from an extended weekend break, ended down 2.6% at 5411.11, Paris's CAC-40 finished 3.6% lower at 3689.29 and Germany's DAX finished down 2.6% at 6006.86.

Asian markets shrugged off an overnight rebound on Wall Street to end mostly lower. Tuesday, Chinese stocks slumped to their lowest level in nearly seven months as trading resumed for the first time after the central bank raised banks' reserve requirements.

Australian stocks extended their losses after the central bank raised the official interest rate by a quarter-point for the sixth time in seven meetings.

Australia's S&P/ASX 200 shed 1% to close at 4737.08, South Korea's Kospi eased 0.1% to 1718.75, Hong Kong's Hang Seng Index slipped 0.2% to 20,763.05, Taiwan's Taiex fell 0.3% to 7930.77 and India's Sensex fell 1.4% to 17,137.14. Singapore's Straits Times Index fell 1.5% to 2901.18.

Thailand's SET index bucked the trend, jumping 4.4% to 796.86 after the government's offer of a political-reconciliation roadmap and possible elections in mid-November stoked optimism that weeks-long protests may soon end.

Markets in Japan were closed for a public holiday.

Commodities: Oil, gold down

The selloff in oil futures accelerated as the dollar rose. Light, sweet crude oil for June delivery in New York dropped $US3.03, or 3.5%, to $US83.16 a barrel.

The drop follows four days of gains in which crude rose $US3.75 a barrel, or 4.5%, and hit an 18-month intraday high of $US87.15 a barrel on Monday.

Gold futures erased early gains, again on the stronger dollar, which capped the metal's rally after a five-month high in dollar terms—and a new record when priced in euros.

June gold was down $US2.70, or 0.2%, at $US1180.60 an ounce in New York. Its intraday high of $US1192.80 was the strongest price for a most-active gold contract since early December.

Currencies: Dollar up, euro down

The dollar soared to a series of 12-month highs against the euro as optimism over economic recovery in the US contrasted with doubts about a successful resolution to the Greek debt crisis.

The euro tumbled more than 1% on fears the unprecedented €110 billion aid package to Greece won't enough to prevent the crisis from spreading to other euro-zone countries.

Hopes of further recovery in the US economy bolstered the greenback against most rivals, with a widely watched dollar index hitting a 12-month peak.

Strong US economic data have reinforced expectations that the Federal Reserve will be able to raise interest rates faster than its counterparts in the European Union and Japan.

The euro was at $US1.3055 from $US1.3194 late on Monday. The dollar was at ¥94.37 from ¥94.60, while the euro was at ¥123.23 from ¥124.81.

The UK pound fell further to $US1.5148 from $1.5244 ahead of the election later this week.

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