US markets drops sharply by Greek referendum plan

02 Nov 2011 Evaluate

The US markets slumped on Tuesday, for the second day on heightened uncertainty over whether Greece would derail European efforts to curb the region’s sovereign debt crisis. The stunning decision by Greece to call a referendum on its bailout - a request made by Prime Minister George Papandreou reinserted a large dose of uncertainty into global markets and comes ahead of the two-day Group of 20 summit in France later this week. The danger of having a referendum is that it could be defeated, in which case Greece presumably would end up defaulting on its debt. Greece’s referendum poses a threat to financial stability in the euro region and increases the risk of a disorderly default, Fitch Ratings stated. Late in the session, the European Commission and the European Council released a statement urging Greece to accept the bailout, which would lower Greece’s debt level to 120% of gross domestic product by 2020 and establish a new program of loans for the country.

In US, Federal Reserve policy makers started a two-day meeting to discuss monetary policy and the economy. Central bankers are considering buying mortgage-backed securities to push down borrowing costs and help homeowners refinance their debt. Also, the market offered little reaction to a gauge of US manufacturing in October, which fell to 50.8% from 51.6% in September.

The Dow Jones industrial average lost 297.05 points, or 2.48 percent, to 11,658.00. The Standard and Poor’s 500 closed lower by 35.02 points, or 2.79 percent, to 1,218.28, while the Nasdaq composite lost 77.45 points, or 2.89 percent, to 2,606.96.

The Indian ADRs closed in red on Tuesday, ICICI Bank was down by 1.24%, Infosys Technologies was down by 1.09%, Dr. Reddy’s Lab was down by 0.71%, Tata Motors was down by 0.67% and Wipro was down by 0.40%.