Dow average swoons as Italian borrowing costs soar

NEW YORK (AP) ? The Dow Jones industrial average plunged 300 points in morning trading Wednesday after Italy’s borrowing costs soared, a sign that Europe’s debt crisis had spilled into the third-largest economy in the euro bloc.

The yield on the benchmark Italian government bond spiked above 7 percent, a sign that investors are losing faith in the country’s ability to repay its debt. Greece, Portugal and Ireland required bailouts when their bond yields rose above 7 percent. Unlike those countries, Italy’s $2.6 trillion in debt load is too large for other European nations to rescue.

At the same time, the yield on the comparable 10-year German government bond, widely considered the safest European government debt, fell to 1.70 percent. That’s a sign that investors are becoming more fearful and therefore willing to accept minuscule returns in exchange for holding investments they consider safe.

Europe’s debt drama continued to play out in Greece. The two main political parties in that country are still engaged in power-sharing negotiations and have yet to name a prime minister to lead an interim government. The new government must pass an austerity package to receive the next loan installment of emergency loans. Without the funds, Greece could default before Christmas.

Markets fear that a chaotic default by either Greece or Italy would lead to huge losses for European banks. That, in turn, could cause a global lending freeze that might escalate into another credit crisis similar to the one in 2008 after Lehman Brothers fell.

Some analysts fear that the euro itself could fall, which would lead to inflation and a breakdown in free trade agreements in the European Union. Together, the countries in the European Union represent the world’s largest economy.

The Dow dropped 310 points, or 2.6 percent, to 11,857 as of 10:40 a.m. Eastern. The S&P 500 lost 36, or 2.8 percent, to 1,240. The Nasdaq composite slid 79, or 2.9 percent, to 2,648.

The slide was extraordinarily broad. Only two stocks in the S&P 500 index rose, Yahoo Inc. and Best Buy Co. Energy and financial companies fell the most. JPMorgan Chase & Co. fell 4.3 percent and Chevron Inc. fell 3 percent.

European markets also fell sharply. Italy’s benchmark index plunged 4.7 percent. Germany’s DAX fell 2.3 percent; France’s CAC-40 lost 2.4 percent.

The prices of assets seen as safe havens rose sharply. The dollar rose 1.8 percent against the euro. The yield on the benchmark 10-year Treasury note fell to 1.95 percent from 2.08 percent late Tuesday, a steep drop.

In corporate news, General Motors Co. lost 8.7 percent after the company said Europe’s economic woes were weighing on its profits.

The Wendy’s Co. dropped 4.2 percent after the company said higher beef prices contributed to a larger third-quarter loss.

Dean Foods fell 5.8 percent after the company took a write-down in its fresh dairy business.