World equities hammered overnight

The New York Stock Exchange. Photo / Thinkstock

Equities got hammered once again amid reports that the European banking system might not be as strong as investors had been led to believe in the wake of stress tests earlier this year.

In late trading, the Dow Jones Industrial Average fell 0.65 per cent, the Standard & Poor's 500 Index declined 0.70 per cent and the Nasdaq Composite Index lost 0.69 per cent. US markets were closed yesterday for the Labor Day holiday.

Among the most active on Wall Street were Bank of America and JP Morgan Chase.

Last week was Wall Street's best in the last two months as stronger-than-expected economic data helped to ease concern the US was heading for a double-dip recession.

However, it took little to unsettle investors. The Wall Street Journal reported that the European bank stress tests intended to measure the strength of major lenders understated their holdings in potentially risky government debt.

Separately, Germany's banking association said the country's 10 biggest banks might need 105 billion euros (US$134 billion) in new capital as regulators revamp rules designed to prevent future crises.

"There's concern about the health about the European banking sector ... that fear kind of comes and goes," Tom Schrader, managing director, US equity trading at Stifel Nicolaus Capital Markets in Baltimore, told Reuters.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge', jumped 10.3 per cent to 23.51.

Oracle has hired Mark Hurd, the former chief executive of Hewlett-Packard who resigned amid a scandal, as president.

Hurd, a close friend of Oracle CEO Larry Ellison, would replace Charles Phillips, who has resigned, Oracle said in a statement on Monday. Phillips was co-president alongside Safra Catz, who remains in her role.

"Mark did a brilliant job at HP and I expect he'll do even better at Oracle," said Ellison in a statement on Monday.

HP said today that it was suing Hurd for his move to Oracle.

"Mark Hurd agreed to and signed agreements designed to protect HP's trade secrets and confidential information," HP spokesman Hani Durzy told Bloomberg. "HP intends to enforce those agreements."

The Stoxx Europe 600 Index declined 0.5 per cent to 259.76.

Across Europe, the U.K.'s FTSE 100 fell 0.58 per cent, Germany's DAX shed 0.60 per cent and

France's CAC 40 dropped 1.11 per cent.

Among the most active stocks in Europe were Societe Generale, Banco Santander, Rio Tinto and Billiton BHP.

Treasuries rose for the first time in four sessions.

A well-received auction of US$33 billion worth of three-year Treasuries, the first of this week's three bond offerings totalling US$67 billion, added to the bond-positive sentiment.

The sale attracted bids worth 3.21 times the amount on offer, right on their six-month average.

Yields at the auction came in slightly below expectations, showing investors were willing to pay a small premium to get the bonds.

"There is a lot of cash in the system. There is a lot of demand at the front end," Joe Larizza, director of governments and agencies trading in Vining Sparks in Memphis, told Reuters.

"You had a lot concerns about European stress tests, and that put a run back into the Treasuries market," Larizza said. "This sets up a positive tone for the rest of the week. We are looking at continued strength going into the auctions."

The yield on the benchmark 10-year note last was 2.63 per cent, down from Friday's close of 2.70 per cent.

The Dollar Index, which measures the greenback against a basket of six major currencies, gained 0.84 per cent to 82.77.

The euro declined, while the yen rose to a 15-year high as renewed concern about the health of the European banking sector sparked risk aversion.

The euro fell 1.1 per cent to $1.2732 midway through the New York trading day. Investors focused significant option expiries on Thursday, when an estimated 1 billion euros are set to roll off at US$1.2600.

Earlier in the trading day, Bank of Japan Governor Masaaki Shirakawa said monetary authorities could not control forex rates, increasing speculation that Japan was not preparing to act to stem yen strength.

"The [U.S.] dollar approached its 15-year low of 83.58 yen because of disappointment over Shirakawa's comments," Keiji Matsumoto, currency strategist at Nikko Cordial Securities, told Reuters.

"He doesn't seem to suggest additional easing. Unless the BOJ fully downgrades its economic assessment, it will not take new additional steps. The dollar/yen could fall to around 82 yen."

The euro fell 1.7 per cent against the yen to 106.57 yen. The greenback fell 0.6 per cent to 83.69 yen after hitting a 15-year low of 83.51 on EBS and 83.52 on Reuters data.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.43 per cent to 273.94.

Oil dropped as doubts resurfaced about the economic recovery and the outlook for energy demand.

An explosion at a major oil refinery in Mexico limited losses, as the country might have to import more oil products from the United States and other trading partners in the coming months.

US crude fell US$1.01 a barrel to $73.59 at 1714 GMT.

Brent crude was up 29 cents from Monday's close to US$77.17.

There was no settlement price for US crude on Monday because of the Labor Day holiday.

Gold dropped. Spot gold fell US$1.55 to US$1,248.00 an ounce by 0036 GMT.

US gold futures for December delivery fell US$1.40 to US$1,249.70 an ounce.