World shares drop on Greece, China fears

Trader Leon Montana works on the floor of the New York Stock Exchange. File photo / AP

Wall Street and European equities fell amid the prospect of renewed political chaos in Greece and as Chinese officials imposed new limits on the types of bonds that can be used as collateral for some short-term loans.

In Greece, the country's benchmark ASE Index plummeted 13 per cent after the government said voting for a new president will start next week, potentially opening the door to national elections that would likely be won by the Syriza party, which opposes Greece's bailout agreement with the European Union and International Monetary Fund.

"Markets have been looking for a trigger to take profits," Raimund Saxinger, a fund manager at Frankfurt-Trust Investment, told Bloomberg News. "There is uncertainty, and if Greece is forced into new elections there is the risk that radical leftist parties will win a relative majority. This could have lots of negative implications for creditors and for banks."

Europe's Stoxx 600 Index finished the day with a 2.3 per cent slump from the previous close. The UK's FTSE 100 Index sank 2.1 per cent, Germany's DAX Index dropped 2.2 per cent, while France's CAC 40 Index plunged 2.6 per cent.

Shares in Britain's largest retailer, Tesco, ended 6.6 per cent lower after it forecast sharply lower than expected earnings.

The pessimism in Europe initially took Wall Street lower though the market started to reverse course after midday.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.34 per cent, the Standard & Poor's 500 Index declined 0.33 per cent, while the Nasdaq Composite Index edged up 0.13 per cent.

Slides in shares of Verizon and those of Merck, down 4.3 per cent and 3.4 per cent respectively, led the Dow lower.

US wholesale inventories rose a larger-than-expected 0.4 per cent in October, following an upwardly revised 0.4 per cent increase in September, Commerce Department data showed.

The turmoil helped gold. Gold futures for February delivery rose 3 per cent to US$1,230.50 an ounce in midday trading on the Comex in New York.

"There are equity market concerns and an increase in the flight away from risky assets to quality," James Steel, an analyst at HSBC Securities (USA) in New York, told Bloomberg News. "Gold seems to be benefiting from that more than anything else."

Oil rebounded from five-year lows reached on Monday, but analysts believed the recovery will be short-lived.

"We're just treading water if you ask me," Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut, told Reuters. "There's this idea again that we may have over-extended to the downside and that's why you're seeing some short covering coming in as people try to find a bottom to the six-month slide we've seen now."