Banks pull Wall Street to 13 month low on Monday as Investors Europe fears

US stocks slumped in heavy volume to some 13-month low on Monday as investors dumped bank shares on fears that Greece's worsening economic crisis could cause a large European lender to fail.

Investors pegged losses towards the sharp fall in Franco-Belgian financial group Dexia, which fell 10% following a Moody's warning about its liquidity due to concerns about contact with Greece.

Markets have feared European officials will be not able to prevent Greece's fiscal crisis from turning into a worldwide banking crisis. Greece said it will miss its deficit targets this season and next, which could limit the country's ability to get more aid.

"Most investors fear that markets in Europe are going to run well ahead of politicians that will not be able to get any kind of reasonable answer, " said Jack de Gan, chief investment officer from Harbor Advisory Corp in Portsmouth, New Hampshire.

US banks have grown to be a target for speculators. Morgan Stanley closed at it's lowest since December 2008, and the cost to insure its debt has leaped as other banks hedge counterparty exposures and traders bet about the situation worsening.

The recession that wiped 12 years of gains from the S&P 500 was caused in part by a credit score crisis.

"We are going to have a disorderly default in Greece and there might be another banking crisis in Europe as they are undercapitalized and packed with (sovereign) debt, " De Gan said.

Morgan Stanley may be the most volatile bank in recent weeks, with the price to insure its debt rising to November 2008 amounts, according to Markit data.

Morgan Stanley shares fell 7. 6% in order to $12. 47 and the S&P financial sector was lower 4. 5%.

The market's focus on Morgan Stanley comes from a perception about their reliance on short-term funding, stated Harbor Advisory's De Gan. "They rely on the credit markets which was the downfall of Lehman and other institutions 3 years ago, " he said.

The Dow Jones industrial typical dropped 258. 08 points, or 2. 36%, to 10, 655. thirty. The S&P 500 fell 32. 19 points, or two. 85%, to 1, 099. 23. The Nasdaq Composite dropped 79. 57 points, or 3. 29%, to 2, 335. 83.

The S&P 500 broke via a previously strong technical support level near 1, 120 before hitting a 13-month intraday low just beneath 1, 100.

The benchmark is also down 19. 4% from its closing high this season, nearly entering a bear market, which is defined like a 20% decline from its recent high set on 04 29.

A stronger-than-expected reading in a gauge of ALL OF US manufacturing briefly lifted Wall Street stocks, but global manufacturing shrank for the very first time in over two years in September, reinforcing fears associated with another recession.

The revelations that Athens would miss its deficit targets for both this season and next despite harsh new austerity measures would be the focus of talks as euro zone finance ministers meet to go over the next steps toward resolving the currency area's sovereign financial debt crisis.

Dexia called an emergency board meeting after concerns about its contact with Greece and a Moody's warning about its liquidity position raised pressure on Belgium and France to do something.

Shares of AMR Corp, parent of American Airlines, lost another of their market value as analysts debated the prospects for any bankruptcy filing for the US airline, which lags it's industry peers.

More than 11 billion shares traded about the New York Stock Exchange, NYSE Amex and Nasdaq, regarding 38% above the year's current daily average of 7. 98 million.

Declining stocks outnumbered advancing ones on both the NYSE and Nasdaq with a ratio of about 10 to 1.

Source : Business-Standard