Stocks tumble, oil drops to near $95 on global economy fears

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It’s an ugly, ugly day for financial markets as fears mount yet again over Europe’s debt crisis and amid more troubling data on the U.S. economy.

The Dow Jones industrial average was down 186 points, or 1.6%, to 11,889 at about 11:30 a.m. PDT, after Tuesday’s short-lived rebound of 1%. Traders also are bailing out of many commodities, pushing crude oil down $4.13 to $95.24 a barrel in New York.

[Updated at 1:15 p.m. PDT: The Dow ended the day off 178.84 points, or 1.5%, to 11,897.27, the lowest since March 18. Oil closed down $4.56 to $94.81 a barrel, lowest since Feb. 22.]

European finance ministers failed to agree on whether to make private bondholders bear some of the cost of the next bailout of Greece, which seems certain to default on its debts without more help from the rest of the euro-zone countries.

Meanwhile, tens of thousands massed in Athens to protest the government’s proposed austerity measures.

Yields on Greek government bonds continued to soar to astronomical levels, a sign investors believe default is inevitable. The yield on two-year Greek bonds surged to a record 28.02% from 26.4% on Tuesday.

European stock markets fell sharply, with most down between 1.2% and 2.2% for the day. And the euro plunged against the dollar, falling to a three-week low of $1.418 from $1.445 on Tuesday. The European Central Bank warned of a potential ‘contagion’ effect across the continent if Greece defaults.

Wall Street, already rattled by Europe’s ongoing troubles, also had to contend with more downbeat reports on the U.S. economy early Wednesday. A Federal Reserve index of manufacturing activity in the New York region plunged from 11.88 in May to a negative 7.79 in June, the first negative reading since November.

New York-area manufacturers “seemed to be in agreement that business conditions at the beginning of June showed little or no improvement over the prior month,” economists at Nomura Securities said in a note. “What’s more disconcerting is that they became more discouraged about the future, as reflected in their expectations of business conditions six months ahead.”

Manufacturing had been one of the few true bright spots in the economy this year.

Another Fed report showed that industrial production nationwide edged up 0.1% in May, less than the 0.2% gain expected by economists surveyed by Bloomberg News. Depressed auto output, a result of Japanese-parts shortages tied to the March earthquake, continued to weigh on overall production.

With stocks and most commodities sliding, some investors are rushing back to U.S. Treasury bonds, pushing yields down. The 10-year T-note yield was at 2.97%, down from 3.10% on Tuesday.

Gold also is attracting buyers. The metal added $1.80 to $1,525.60 an ounce.

-- Tom Petruno

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