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U.S. market has biggest drop in two years on Greek default fears

U.S. market has biggest drop in two years on Greek default fears

The U.S. stock market suffered its worst drop in two years Monday amid a global selloff after Greece closed its banks and imposed restrictions on cash withdrawals to try to prevent a deepening financial crisis from worsening amid faltering bailout talks with its international creditors. The Dow Jones industrial average fell 350 points, or 2.0%, to 17,597 for its biggest slide since June 2013. Indexes in Europe were hit even harder with Germany’s DAX index down 3.6% and France’s CAC 40 down 3.7%. In Asia, Tokyo’s Nikkei 225 fell 2.9% and China’s Shanghai composite lost another 3.3% to officially enter bear market territory — meaning a drop of 20% or more.2013-11-04T131020Z_8_CBRE99U0VX000_RTROPTP_3_MARKETS-STOCKS_original

The global slide came after Greece’s government ordered the country’s banks and stock market closed for a week to try to contain collapsing share prices. Yields on Greece’s 10-year government bonds moved past 14%, although the euro was up a little against the dollar at $1.12. Standard & Poor’s rating agency cut Greece’s credit rating further into junk status Monday and said there is now a 50% chance of Greece leaving the eurozone.

Over the weekend, Greek Prime Minister Alexis Tsipras said his country would hold a July 5 national referendum on whether to accept austerity measures demanded by the International Monetary Fund, European Central Bank and European Commission in return for releasing the final $8 billion of a $270 billion financial crisis aid package. However before that, on Tuesday, Athens needs to pay the IMF a $1.8 billion loan repayment or face the prospect of default, a scenario that could increase the possibility of Greece leaving the eurozone, a 19-member economic and currency bloc.

“With negotiations halted, the Greek situation has rapidly moved to the worst-case scenario and investors who jumped to the conclusion last week that a deal was done will be suffering significant losses,” said Alastair George, chief strategist at Edison Investment Research, a consultant. Sunday, the ECB froze emergency funding to Greece’s banks that lenders there have been using to meet short-term funding needs. The capital controls put in place Monday by Greece permit people to withdraw just $66 per day at ATMs, a limit that affects residents but not tourists. About 20% of Greece’s GDP is generated through tourism.

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