While you were sleeping: Summit expectations plummet

BUSINESSDESK: Equities slumped on both sides of the pond as concern prevailed that this week's two-day summit of European Union leaders will produce little in the way of turning around the debt crisis.

In late afternoon trading in New York, the Standard & Poor’s 500 Index declined 1.71%. The Dow Jones Industrial Average dropped 1.27%, while the Nasdaq Composite Index weakened 2%.

In Europe, the Stoxx 600 Index ended the day with a loss of 1.5% on the previous session. That erased its gain for the year, according to Bloomberg News.

Among other signs of concern about Europe's outlook were another drop in oil prices and the direction of bond yields – those on US Treasuries, a perceived safe-haven, are falling while those on Spain and Italy are flying high.

The 10-year US note yield shed seven basis points to 1.61%, according to Bloomberg Bond Trader prices, posting the largest intraday drop since June 15.

"Declining oil prices and near-record low bond yields indicate slowing global growth, while elevated sovereign credit spreads and a strong US dollar suggest the European crisis is nowhere near being resolved," Mandy Xu, equity derivatives strategist at Credit Suisse in New York, told Reuters.

Spain’s two-year yields soared 39 basis points to 4.83% as the nation made a formal request for as much as 100 billion euros of aid for its banks from the European Union.

While some believe eurozone bonds can provide the answer to a few of the region's problems, German Chancellor Angela Merkel dug her heels deeper into the ground.

"It’s not a bold prediction to say that in Brussels most eyes – all eyes – will be on Germany yet again," Ms Merkel said at a conference in Berlin today, Bloomberg reported.

"I say quite openly: when I think of the summit on Thursday I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures."

The euro didn't fare so well today either, weakening 0.7% to $US1.2483. The currency wasn't helped by news that the new Greek finance minister resigned days after accepting the position. He stepped down from hospital, where he has been since collapsing on Friday.

Billionaire George Soros has told Bloomberg in a TV interview that the EU's leaders basically have three days left to resolve their differences. Mr Soros said Ms Merkel is leading Europe in the wrong direction.

The deteriorating conditions in Europe are clearly taking its toll. Credit Suisse is to cut senior staff in its European investment banking department by up to a third, three sources familiar with the matter told Reuters, because of tighter regulation and weak markets.

"In the European investment banking business, they are going to get rid of 60 directors and managing directors," one source said yesterday.