Fearing a financial rupture in Europe, investors around the world fled from risk Wednesday. They punished stocks and the euro and flocked to bonds, driving the yield on the benchmark 10-year U.S. Treasury note to its lowest point since World War II.
In the United States, where concerns about Europe have already wiped out most of the strong gain that stocks had from January through March, major averages fell more than 1 percent. The Dow Jones industrial average closed down almost 161 points.
With Spain’s banking system teetering and Greece’s political future unclear ahead of crucial elections next month, European stocks lost even more. The euro dropped below $1.24, to its lowest point since summer 2010.
“Everyone’s just afraid that if Europe doesn’t get its act together, there will be a big spillover in the U.S.,” said Peter Tchir, manager of the hedge fund TF Market Advisors.
He said the uncertainty in Europe was reminiscent of the financial crisis in the fall of 2008, when it was briefly unclear in the United States whether banks would be bailed out and “we had these giant swings up and down.”
Wall Street was down from the opening bell.
The Dow closed down 160.83 points, or 1.3 percent, at 12,419.86. The Dow has had a miserable May, losing more than 6 percent.
The Standard & Poor’s 500 index lost 19.1 points to 1,313.32. The Nasdaq composite index fell 33.63 to 2,837.36. Energy stocks were hit hardest because of a big drop in the price of oil, but stocks in all major industries fell.
The trigger for Wednesday’s sell-off was Spain, where the banking system is under strain a week after its fourth-largest bank required $23.8 billion in government aid to cover souring real estate loans.
Investors are increasingly worried that problems at the bank, Bankia, might recur at other Spanish banks. Losses from the real estate crash might be too big for Spain’s government to shoulder.
On Wednesday, borrowing rates rose sharply for Spain and Italy, which are seen as the latest problem cases in a debt crisis that has rocked global markets for more than two years. Traders dumped bonds issued by those governments.
The yield on Spain’s 10-year bonds, a key indicator of market confidence in the country’s ability to continue to make payments on its debt, shot as high as 6.69 percent, the highest since the euro currency was launched in 2002.