Financial equities sell-off drags Wall Street down

Dow Jones:11,955.01 (–276.10) Nasdaq:2,684.41 (–52.74) S&P 500:1,253.30 (–31.79)

WALL STREET closed its best month in 20 years on a down note yesterday as the failure of trading firm MF Global Holdings Ltd and new worries about Europe’s debt crisis hammered financial shares.

In a sign that Europe’s woes were far from over, Italian and Spanish bond yields soared, prompting the European Central Bank to buy the debt, while shares of European banks came under heavy selling pressure.

MF Global Holdings, the futures broker that made big bets on European sovereign debt, filed for US Chapter 11 bankruptcy protection, making it the biggest US casualty of the euro zone crisis.Trading in its shares was halted.

Financial shares fell sharply. Morgan Stanley, which has tended to do poorly when fears over Europe rise, dropped nearly 9 per cent to $17.64.

“We started the day with more questions about the European Union,” said Mark Grant, Southwest Securities managing director in Fort Lauderdale, Florida.

“Serious questions were raised, and then MF Global came along. MF is involved in all kinds of markets, and the fallout from them going bankrupt is unknown,” he said.

As the sell-off accelerated at the market’s close, the CBOE volatility index jumped over 22 per cent.

Contributing to the downward pressure, the US dollar shot up to a three-month high against the yen as the government of Japan intervened to curb its currency’s appreciation, which hurt the export-based economy.

The jump in the dollar caused shares in energy and natural resources companies to fall sharply.

Bank stocks were among the worst performing, with the KBW bank index down 4 per cent, although analysts said MF Global was unlikely to be big enough to spark a systemic failure in the banking sector.

JP Morgan Chase, which, according to an MF Global court filing, has about $1.2 billion worth of claims on the brokerage, fell 5.2 per cent to $34.76.

The higher dollar pressured commodity prices, with copper off 2 per cent and Brent crude 0.3 per cent lower.

Shares of Freeport-McMoRan Copper Gold lost 5.9 per cent to $40.26.

Aluminium company Alcoa fell 7 per cent to $10.76. – (Reuters)