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Economic Worries in U.S., Overseas Spark Global Market Sell-Offs

August 18, 2011 at 12:00 AM EST
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RAY SUAREZ: A wave of economic worries at home and abroad drowned any optimism on stock markets today. Investors from Tokyo to New York were caught up in a rush to the exits. And the Dow Jones Industrial Average plunged more than 400 points.

The momentum was already irresistible by the time the opening bell sounded on Wall Street. U.S. stocks became the last domino to fall in a massive global sell-off. In the end, the Dow lost 419 points to settle at 10,990. The Nasdaq fell 131 points, ending the day at 2,380.

The collapse, after a few days’ respite, was driven in part by a barrage of bad economic data. Sales of existing homes dropped in July for the third time in four months, while inflation, driven by higher gas prices, rose half-a-percent, the most since March. And new claims for unemployment benefits rose back above 400,000 last week.

ALAN VALDES, DME Securities: Yes, unemployment, to, I think every trader down here, that is the most important number. You get auto sales, you get everything else, but at the end of the day, in a nation that’s powered by consumer spending — 70 percent of this country is powered by consumer spending — it comes down to jobs. I mean, jobs is the bottom line, and that’s something that there is no silver bullet for.

RAY SUAREZ: Here and in Europe, the concern was overlaid with new fears about the solvency of European banks. German shares took the hardest hit, down 6.5 percent.

ROBERT HALVER, Baader Bank (through translator): We have insecurity that now arrives in the real economy and in the banks. We can see that the banks distrust each other, that the equity bond market has dried out. At the moment, there is an aversion against risk. Nobody wants to lend money.

RAY SUAREZ: Adding to the pessimism, economists at Morgan Stanley issued a grim warning that the U.S. and European economies are dangerously close to recession.

Meanwhile, in Beijing, China, Vice President Joe Biden met with his Chinese counterpart and stressed the need for U.S.-Chinese cooperation to calm things down.

VICE PRESIDENT JOSEPH BIDEN: As the two largest economies in the world, at the moment when the world economic circumstance is uneasy, I think we hold the key, together, to not only our own prosperity, but to generating growth in jobs worldwide.

RAY SUAREZ: Key market averages in China and much of the rest of Asia were also casualties of the day’s volatility, down one to two percent.