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While you were sleeping: Throwing in the towel

While you were sleeping: Throwing in the towel

(BusinessDesk) August 5 - Shares across Europe and on Wall Street plunged, with the three key American equity indexes all shedding more than 3% ahead of the close, as investors sought safe havens amid the increasingly bleak U.S. economic outlook and lingering E.U. debt crisis.

In late trading, the Dow Jones industrial average was down 3.01%, the Standard & Poor's 500 Index had dropped 3.32% and the Nasdaq Composite Index had lost 3.36%. Earlier in Europe, the Stoxx 600 Index ended the day with a 3.4% fall.

"People are throwing in the towel because they can't find relief on any front. There are a lot of worries about the economy," Milton Ezrati, market strategist at Lord Abbett Co. in Jersey City, New Jersey, which manages US$110 billion in assets, told Reuters.

Underpinning concern about the government's monthly payrolls report, one of the most closely watched U.S. economic indicators due tomorrow, was a Labor Department report showing first-time claims for unemployment benefits edged down by a mere 1,000 to 400,000 last week.

“The mood right now is gloomy,” Mike Ryan, the New York- based chief investment strategist at UBS Wealth Management Americas, told Bloomberg. His firm oversees US$774 billion. “The burden of proof is for better data that show the economy is not falling into recession.

Across the Atlantic, European Central Bank President Jean-Claude Trichet said that the bank's bond-buying program was continuing. The central bank also announced it was keeping interest rates steady.

In Japan, the yen tumbled after the government intervened in currency markets to stem recent gains and help the export-led economy. Japan sold one trillion yen, or US$12.5 billion.

Finance Minister Yoshihiko Noda confirmed Tokyo had intervened, saying Japan had acted alone but was communicating with other countries on the move, according to Reuters.

Both the yen and the Swiss franc have been bolstered by their safe-haven appeal. Yesterday, the Swiss National Bank unexpectedly slashed interest rates to lower feverish demand for the Swiss franc.

The Dollar Index, which tracks the greenback against the currencies of six trading partners, climbed 1.4%.

"You can pick your story for why we're seeing continued pressure. Europe is probably the most prevalent one today, but there's the whole unfortunate process with the debt ceiling, combined with weak economic numbers here and abroad. That makes for a perfect storm for stocks," Walter Todd, who helps manage US$950 million at Greenwood Capital in Greenwood, South Carolina, told Reuters.

Commodities suffered from the worsening economic outlook, with copper futures posting the largest drop in 10 weeks. Oil plunged 5.6% to US$86.79 a barrel as 21 of 24 commodities tracked by the S&P GSCI Index dropped. Gold retreated from a record too.

There was bad news on the corporate earnings front too.

Gap Inc plunged 12% after sales missed analysts’ estimates, while DirecTV dropped more than 6% after failing to attract as many new subscribers as analysts’ hoped.

Meanwhile, Kraft Foods Inc CEO Irene Rosenfeld is breaking up the company, which will give investors the opportunity to bet on a snacks business that is growing quickly in emerging markets, or opt for the stable dividends offered by a slower growing general grocery business.

Bilionaire investors Nelson Peltz and Warren Buffett, both influential shareholders, supported the split, CNBC reported, according to Reuters.


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