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Published: Thursday May 17, 2012 MYT 7:30:00 AM
Updated: Thursday May 17, 2012 MYT 8:03:22 AM

GLOBAL MARKETS-Euro, US stocks fall on ECB, Fed minutes

NEW YORK: U.S. stocks and the euro slid on Wednesday on news that some Greek banks face emergency funding needs, while minutes from the Federal Reserve's April meeting showed U.S. economic prospects remain sobering.

The European Central Bank stopped funding operations for some Greek banks as they are undercapitalized, the ECB said, confirming a Reuters report that had fanned concerns about Greece's financial difficulties.

The funding needs highlighted the weak state of the banking sector in Greece, where many Greeks are withdrawing money out of fear their country may soon leave the euro zone.

The euro slid and shares in Europe closed lower in choppy trading as worries mounted over the stability of the euro zone. Greece plans to hold fresh elections in mid-June that likely will determine whether it remains in the common currency area.

"All eyes continue to be trained on Europe, what is going to happen in Greece, what the potential fallout from that is going to be," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The Dow Jones industrial average closed down 33.45 points, or 0.26 percent, at 12,598.55. The Standard & Poor's 500 Index fell 5.86 points, or 0.44 percent, at 1,324.80. The Nasdaq Composite Index shed 19.72 points, or 0.68 percent, at 2,874.04.

Efforts by German Chancellor Angela Merkel and new French President Francois Hollande to quell talk of a possible Greek exit from the euro zone bolstered sentiment for much of the day.

But U.S. stocks retreated on the ECB news and the Fed minutes, which showed several members of the U.S. central bank's policy-setting committee had indicated that additional monetary policy accommodation could still be necessary.

MSCI's all-country world equity index fell 1 percent to 304.70.

Data showing U.S. industrial production posted its fastest growth in over a year in April and a surge in groundbreaking for new homes that suggested a rebound in U.S. housing was gaining some traction had spurred early U.S. stock market gains.

Investors have also turned to Treasuries and other perceived safe-haven assets, however, on signs of slowing growth in China and jitters about banking in the wake of the $2 billion trading loss at JPMorgan Chase & Co, traders and analysts said.

"The (Treasuries) market is long and traders see the mess in Europe won't be resolved for a long time," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA in New York. "The market is priced for Armageddon."

The benchmark 10-year Treasury note rebounded, rising 3/32 in price to yield 1.76 percent. The 30-year U.S. Treasury bond rose 13/32 in price to yield 2.90 percent.

The euro slid for a fourth straight session, dropping to a four-month low against the U.S. dollar.

The euro was down 0.13 percent at $1.2713. The dollar index, a basket measuring the greenback's strength against other major currencies, rose 0.23 percent to 81.405.

Crude oil futures tumbled as risk aversion spread across markets following the report on Greek banks.

Brent crude settled down 53 cents at $111.71 a barrel while U.S. oil settled down $1.17 to $92.81.

Gold sank to a 2012 low before paring losses in choppy trade, torn between hope that France and Germany would work to keep the euro zone intact and the signs of stress in the Greek banking sector.

U.S. gold futures for June delivery slid 1.2 percent to $1,538.86 an ounce, hitting the lowest price for a most-active contract since July. - Reuters

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