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Dow falls nearly 300 points on fear of Europe debt deal blow-up

November 1, 2011 |  1:36 pm

U.S. stocks were pounded for a second day as Europe's government-debt crisis took yet another turn for the worse.

The Greek prime minister’s surprise call for a national referendum on the country’s European bailout plan triggered selling in equity markets worldwide, leaving the Dow Jones industrial average down 297.05 points, or 2.5%, to 11,657.96 at the closing bell.

After Monday’s 2.3% slump, the Dow now has given back all of last week’s 3.6% surge, and then some. The index is at its lowest level since Oct. 20.

Broader market indexes also plunged in heavy trading. The Nasdaq composite dived 2.9%; the Standard & Poor’s 500 sank 2.8%.

Greek Prime Minister George Papandreou’s shocking decision late Monday to call a referendum on the bailout raised the risk of a thumbs-down by austerity-weary Greek voters. That could mean the end of Greece’s membership in the Eurozone -- and a disastrous default on all of the country’s heavy debt obligations to the rest of the continent.

Global financial markets’ response was visceral because “we thought we had this thing put to bed,” said Phil Orlando, chief equity strategist at Federated Investors in New York.

Some investors ran for the cover of U.S. Treasury bonds, driving the 10-year T-note yield to 1.98%, down from 2.11% on Monday and the lowest since Oct. 5.

Stocks had pared their losses at midday after Socialist lawmakers in Athens said they opposed the idea of a referendum, raising doubts that it could get through parliament. But Papandreou’s spokesman reiterated that the government intended to press ahead with the referendum.

Whether Papandreou’s government will survive, however, remains a critical question. It is likely to face a confidence vote in parliament later this week. If the government falls the Eurozone’s rescue plan might still be thrown into doubt.

In European trading Tuesday, equity markets suffered another mini-crash after their October rally. Italian stocks dived 6.8%, the French market lost 5.4% and the Spanish market slid 4.2%.

Yields on Italian government bonds jumped again, with the 10-year bond yield rising to 6.19%, up from 6.09% on Monday and nearing a new 52-week high. Rising Italian yields show investors are increasingly doubtful about the broader financial rescue plan that European leaders approved Thursday.


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-- Tom Petruno

Photo: Protesters dressed as prisoners gather during an event to protest against austerity measures outside the Greek parliament in Athens on Tuesday. Credit: Thanassis Stavrakis / Associated Press