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BL: Stocks, Metals Plunge as Dollar Gains on Concerns Over Debt, Unemployment

By Rita Nazareth and Gavin Serkin

Feb. 4 (Bloomberg) -- Stocks plunged around the world, with the MSCI World Index dropping the most in four months, and metals tumbled on concern an unexpected increase in U.S. jobless claims and growing sovereign debt will derail the economic recovery. The euro slid to the lowest since June.

The MSCI World Index of 23 developed markets sank 2.2 percent, the most since Oct. 1, while the Standard & Poor’s 500 Index fell 2.1 percent and Spain’s Ibex 35 Index retreated 5.5 percent at 11:03 a.m. in New York. Gold and oil lost at least 3 percent as a stronger dollar diminished demand for commodities as an alternative investment. The euro sank 0.8 percent to $1.3781 versus the dollar, the lowest since June 16.

U.S. equities extended the global slide as initial applications for unemployment insurance unexpectedly increased to 480,000 last week and companies from MasterCard Inc. to Monster Worldwide Inc. reported earnings that trailed analyst estimates. European shares extended an earlier slide triggered when a disappointing Spanish bond auction added to concern some European nations will struggle to finance their budget deficits.

“Look at those initial claims,” said Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages $400 billion. “Unemployed people don’t spend money. That means the growth we’ve seen is not sustainable until people get jobs. Also, there are lots of uncertainties on a global basis. That’s certainly negative news for the market. I wouldn’t be surprised if we started to see dramatic increases in volatility again.”

Stocks Sink

Retreating shares in the MSCI World outnumbered rising stocks by almost six to one, while only 20 companies in the S&P 500 advanced and all but one in the Dow Jones Industrial Average declined. Monster Worldwide Inc., which offers help-wanted advertisements on the Internet, plunged 20 percent in its biggest decline since 2002. MasterCard lost 7.2 percent, the most in more than a year.

Europe’s Dow Jones Stoxx 600 Index sank 2.6 percent, the most since November, as national benchmarks from Britain to Germany tumbled more than 2 percent. Portugal’s PSI-20 Index slumped 5.3 percent, the most in 14 months.

Greece’s ASE Index lost 3.3 percent on concern plans for a strike by the country’s biggest union show Prime Minister George Papandreou may not win enough support in parliament for spending reductions.

The European Union’s pledge yesterday to back Greece’s plan to cut the region’s biggest budget deficit prompted investors to shun securities of countries with the worst shortfalls.

European Bonds

Portugal led declines in government bonds, with the premium investors demand to hold the securities instead of benchmark German bunds widening 10 basis points to 157 basis points, the biggest difference since March. Spain sold 2.5 billion euros ($3.5 billion) of three-year securities today to yield 2.63 percent, compared with 2.14 percent the last time the notes were issued Dec. 3.

Banco Santander SA, the biggest Spanish bank, slumped 7.3 percent.

Credit-default swaps on Portugal’s government debt soared 15 basis points to a record 211, according to CMA DataVision prices. Contracts on Greece jumped 18 basis points to 415.5, Spain increased 12 basis points to 164, Italy was up 7 at 138 and Ireland climbed 6.5 basis points to 169.5.

‘Focus Is Shifting’

“The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece,” said Kornelius Purps, a fixed-income strategist in Munich at UniCredit Markets & Investment Banking.

European Central Bank President Jean-Claude Trichet said he is “confident” that Greece is moving in the right direction to cut its deficit. He spoke at a press briefing after the ECB left its benchmark interest rate unchanged at a record 1 percent.

The MSCI Emerging Markets Index dropped 2.3 percent, snapping a three-day rally. Poland’s WIG 20 Index fell 4.1 percent after the European Commission said the government’s budget gap may widen to a 15-year high of 7.5 percent of gross domestic product in 2010, from 6.4 percent last year, without “sizeable” measures.

The dollar gained against 15 of 16 major counterparts, adding at least 1.5 percent versus the New Zealand dollar and South African rand. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.6 percent to 79.86, the highest since July.

Gold fell the most in two months, with April futures losing 3.4 percent to $1,074.10 an ounce in New York.

Crude oil for March delivery fell as much as 3.2 percent to $74.50 a barrel, the biggest decline in three months.

To contact the reporters on this story: Rita Nazareth in New York at [e-mail]; Gavin Serkin at [e-mail]

Last Updated: February 4, 2010 11:08 EST