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. Last Updated: 07/27/2016

Fears of World Crises Send Dow Tumbling


A furious flight to safety amid growing concerns of international crises sent bonds surging and stocks tumbling in U.S. trading Friday.

European equity markets dived 3 percent to 5 percent as they mirrored the mood on Wall Street.

The turmoil, which included worries about the ruble and currencies in Latin America, the surprise strikes by the United States on Thursday in Afghanistan and Sudan and continuing economic decline in Asia, stripped away any sense stocks could convincingly shake their malaise.

The Dow Jones industrial average slid 84.19 points, or 0.94 percent, to close at 8,527.22. At one point the Dow plummeted more than 200 points, dropping below the 8,400 line. Including Friday's losses, the blue-chip barometer is now some 10 percent below its record high of 9,337.97 on July 17. A drop of 10 percent is considered a "correction," while a sustained drop of 20 percent or more marks the onset of a bear market.

"The markets don't like uncertainty, and we have a lot of that right now," said Peter Coolidge, senior equity trader at Brean Murray & Co.

"There are jitters because of everything that is happening," Coolidge said. "Russia continues to slide into the abyss as far as their equities market."

An indication of the nervousness on world financial markets is the rush Friday to buy U.S. Treasury bonds, a traditional haven in times of unrest. Yields on 30-year Treasury bonds, which go down as prices go up, dropped below 5.5 percent for the first time in the two decades such bonds have been issued.

Bond futures in Germany, Britain, Italy and France surged to record highs as investors panicked over world crises.

"The speed of the bond rally has been enhanced by the weakness in emerging markets and by the somewhat turbulent performance of the stock market," said Paul Griffiths, head of bonds at Invesco GT, which has just under $10 billion under management in global bond funds.

"Add to that a bit of sexual scandal in the U.S. and bombing of terrorists, and suddenly the world becomes a slightly riskier place where bonds become a bit more attractive."

European stocks suffered their most dramatic losses in five weeks of turmoil Friday, led by falls of more than 5 percent in Germany and Spain, as worries over the Russian economic crisis deepened and spread to Latin America.

Comments by the Russian prime minister that the country's problems were only just beginning and speculation about a devaluation of the Venezuelan bolivar sent investors fleeing to the safety of bonds, pushing European futures contracts to record highs and yields in the cash markets to all-time lows.

"Every time we think things are settling down again sentiment is hit by something else. ... First it was Asia, then Russia and now the worry is spreading to South America," said Steve Wright, British equity strategist at CSFB.

German stocks led the decline with the benchmark DAX index down more than 6 percent in late trading and closed 5.4 percent lower at 5190.60, completing a fifth successive week of losses. The German equity market was the hardest hit in Europe because of the country's proximity to Russia and the fact that German banks are Russia's biggest creditors.

In London, Europe's biggest bourse, the FTSE 100, fell 3.4 percent, while the Paris CAC 40 share index dropped 3.5 percent. Norwegian shares fell 3.0 percent to their lowest levels in more than 16 months after a interest rate increase.

Bigger falls were seen in Madrid, where the Russian worries were joined by concern about the heavy exposure of companies to devaluation risks in Latin America.

The falls stemmed from rumors Thursday that Venezuela may devalue the bolivar.

The dollar-adjusted Moscow Times Index of 50 leading shares dropped 4.77 percent to 55.85 points, although there was hardly any trading. Volumes were $4.74 million.