European Stocks Swing Wildly in Volatile Trade

By ISHAQ SIDDIQI

 The Wall Street Journal

LONDON—European stock markets plunged after earlier swinging to positive territory, as worries of another recession in the U.S. and debt contagion across the euro zone hit investor confidence.

The DAX in Frankfurt was recently 4.4% lower and London's FTSE 100 had also dropped 2.5%. The CAC index in Paris had fallen 2.4%.

Stocks had risen after an opening loss on hope that the Federal Reserve will act at its monthly policy meeting at 1815 GMT. "Given the recent plunges in equities and weak economic data, market expectations for a third round of quantitative easing are rising sharply," added Crédit Agricole. Other data Tuesday includes U.K. trade balance, industrial production and manufacturing production reports, all due at 0830 GMT.

Still, worries about euro-zone debt and a potential slowdown in the global recovery remain, traders say.

"The heavy volume over the recent days shows a serious liquidation of positions as confidence amongst traders evaporates. Markets look to be in free fall and whilst some pundits suggest that this is a buying opportunity, traders are taking any minor pullback as an opportunity to further liquidate holdings," said Jonathan Sudaria, dealer at Capital Spreads. He added that the FTSE is under additional pressure following a third night of rioting and looting in London that leapt from one neighborhood to another, together with some major cities in the U.K.

The heightened concerns about global growth has buoyed gold prices, with the spot price for the yellow metal rising to a new record high of $1,771.20 a troy ounce. Spot gold was recently at $1,755, up $44.20 from New York trade. Also seeing a rush into safe havens, the September bund futures contract closed 72 ticks higher at 133.08.

By contrast, oil prices were pummeled with the September Nymex crude oil futures plunging to a 10-month low of $77.34 a barrel. The contract was recently down $2.46 at $78.85.

On Wall Street Monday, stocks tumbled on fears about government debt and that the economy will slide into another recession. Monday was the stock market's first trading day since Standard & Poor's downgraded the federal government's credit rating late Friday.

The Dow Jones Industrial Average sank 5.55% to 10809.85, falling beneath 11000 for the first time since November and adding to last week's steep losses. The Standard & Poor's 500 stock index tumbled 6.66% to 1119.46, the 10th decline in 11 sessions. The Nasdaq Composite slumped 6.9% to 2357.69.

The losses on Wall Street weighed heavily on Asian markets with Japan's Nikkei Stock Average falling 2.6%, while South Korea's Kospi Composite fell 4.4%. Hong Kong's Hang Seng fell 4.2%, while China's Shanghai Composite shed 0.4%.

In the foreign exchanges, safe-haven currencies such as the yen and Swiss franc are firmer amid growing investor worries about a slowdown in the global economy.

By 0544 GMT, the yen rose sharply against the dollar on safe-harbor demand, putting markets on high alert for intervention by Japanese authorities to cap the yen. The euro was at $1.4243 from $1.4181 late Monday in New York. The dollar was at ¥77.40—closer to the levels Japan's currency intervention started last week—from ¥77.79 in New York trade Monday. The Swiss franc stayed higher, partially denting intervention by the government there last week to support the country's exports; the dollar at 0.7538 francs from 0.7548 francs.

Write to Ishaq Siddiqi at ishaq.siddiqi@dowjones.com