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Thursday, November 10, 2011

US Stocks get hammered by Italy fears (ext)

NEW YORK (CNNMoney) -- Investors ran for the hills Wednesday, shaken to the core by fears that Italy, Europe's fourth-largest economy, was headed deeper into crisis mode.

U.S. stocks sold off sharply right from the open after Italy's 10-year bond yield spiked above 7% -- its highest since the euro was launched in 1999.

The 7% figure is a psychological trigger for investors since it was the level that heightened worries about Greece, Ireland and Portugal. All three eventually needed some type of bailout.

The selling intensified in the afternoon amid reports that European Union officials said they have no plans to rescue Italy.

The Dow Jones industrial average (INDU) tumbled 389 points, or 3.2%, with all 30 of the blue chip index's components firmly in the red. The S&P 500 (SPX) sank 47 points, or 3.7%. Best Buy (BBY, Fortune 500) was the only member of the benchmark index to post gains. The tech-heavy Nasdaq composite (COMP) lost 106 points, or 3.9%.

They day's losses pushed the S&P 500 and Nasdaq into the red for 2011, while the Dow is barely hanging on to a 1.8% gain for the year.

While Italy's bond rates are triggering intense market anxiety, experts say the problem is a lack of investor confidence, rather than solvency, which is plaguing debt-laden eurozone neighbors like Greece.

"This is a crisis of confidence, not of fundamentals," said Mark McCormick, currency strategist at Brown Brothers Harriman. "Italy's debt level is sustainable, but it needs to implement policies that will support economic growth."

If Italy works to solve its problems, the European Central Bank or International Monetary Fund will likely have the leverage that they need to step in with an emergency policy response to help reduce nervousness, said McCormick.

"We're already hearing rumors of an emergency ECB meeting, so they could come in and aggressively buy more Italian bonds," said McCormick. "But it's a moral hazard for the ECB to buy a country's debt unless that country is addressing its long-term problems."

The dollar rose against the British pound, but edged lower versus the Japanese yen.

The stronger buck pressured commodity prices. Oil for December delivery fell $1.06 to settle at $95.74 a barrel. Gold futures for December delivery fell $7.60 to settle at $1,791.60 an ounce.

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