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Confidence in Europe craters, and global markets pay the price

May 14, 2010 | 11:44 am

Friday is turning out to be a day to sell nearly everything, and ask questions later, as fears balloon again that Europe could lead the planet into another recession.

Stock markets have tumbled worldwide, dragging most commodities lower as well. The Dow Jones industrial average was off 192 points, or 1.8%, to 10,591 at about 11:40 a.m. PDT.

Even gold was down at one point in the session, although it has snapped back to $1,233 an ounce, up from $1,229 on Thursday. The metal jumped to an all-time high on Wednesday.

Just five days after the European Union announced a plan to provide nearly $1 trillion in loans to its weakest debt-challenged states, if needed, markets are casting a huge vote of no-confidence in the euro-zone.

Ecbsymbol The euro itself, which has been sliding all week despite Sunday’s rescue announcement, plummeted as low as $1.236 on Friday, the weakest since October 2008 and down from $1.253 on Thursday.

Europe’s leaders are doing little to bolster confidence in the future of the currency. The Spanish newspaper El Pais reported that French President Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the bailout plan at last weekend’s summit in Brussels.

Stocks plunged across Europe on Friday, although major indexes stayed above their lows reached a week earlier, before the rescue was hammered out.

The Spanish stock market plummeted 6.6%, Italy dropped 5.3%, France lost 4.6% and Germany was down 3.1%.

More troubling, perhaps, is that market yields on euro-zone government bonds jumped after declining most of the week. The latest bond sell-off is a direct challenge to the European Central Bank, which this week began buying government bonds for its own account in an attempt to keep yields suppressed.

The yield on Greek two-year notes rose to 7.27% from 6.87% on Thursday, though it remained below its panic peak of 18.27% a week ago. Portuguese two-year note yields rose to 2.48% from 2.30% Thursday.

Investors and traders also are dumping commodities. Near-term crude oil futures were down $2.79 to $71.61 barrel, the lowest since February.

In part, commodities are taking a hit as the dollar zooms at the euro’s expense. The greenback is the day’s big winner, with the DXY index of the dollar’s value against six major currencies up nearly 1% to its highest in more than a year.

And once again, when in doubt, some investors are pumping their cash into U.S. Treasury bonds. The two-year T-note yield has fallen to 0.78% from 0.83% on Thursday.

For many beleaguered investors, Friday’s closing bell can’t ring soon enough.

-- Tom Petruno

Photo: The euro symbol outside the European Central Bank's headquarters in Frankfurt, Germany. Credit: Thomas Lohnes / AFP / Getty Images