U.S. Stocks

U.S. stocks staged a fierce comeback in the final minutes of trading on a report that European Union finance ministers are examining ways of co-ordinating recapitalizations of financial institutions. The Dow Jones Industrial Average was recently up 22 points, or 0.2%, at 10678, after earlier falling as much as 251 points. The blue-chip index was down more than 200 points in the final hour of trading before recovering. The Dow fell 498.68 points over the previous two trading days and closed Monday at its lowest level in more than a year. The Standard & Poor's 500-stock index reversed earlier losses dropped 15 points, or 1.4%, to 1084. It is down more than 20% from its intraday high in May, a threshold that many analysts believe signals a bear market is under way. The Nasdaq Composite gained 39 points, or 1.7%, to 2375. The reversal comes after the Financial Times reported E.U. finance ministers, meeting in Luxembourg, concluded that they had not done enough to convince financial markets that Europe's banks could withstand the current debt crisis. Traders also pointed to news that Franco-Belgian lender Dexia is set to park assets into a so-called bad bank, a vehicle backed by guarantees from the French and Belgian governments. Continuing fear of European debt defaults have not only weighed on markets for months, but also contributed to heightened fears of a global recession. Greece warned over the weekend that it would fail to meet its targets for reducing its budget deficit this year, which reinforced a widespread concern that the government would default on its debt.

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EU Stocks

European stocks closed markedly lower Tuesday on heightened fears that Greece's debt problems will trigger a funding crisis for the banking system, which in turn could lead to a global double-dip recession. Banks, basic resources, autos and construction stocks which are all sensitive to the economy led the declines in Europe, while Dexia fell 37% during the session as the bank admitted that its business faces structural problems and signaled that it could be broken up. The slide in Dexia's share price follows a 10% drop Monday after ratings company Moody's Investors Service said it was reviewing the bank for a possible downgrade because of problems it may have getting funding in difficult markets. Concerns deepened after euro-zone finance ministers said they were delaying a decision on whether Greece would be receiving the next tranche of its bailout funds. Despite the heads of many European banks stating they wouldn't be affected by Dexia, investors were less convinced. The Stoxx Europe 600 banks index finished down 4.3%, and Dexia slumped 22%. The Stoxx Europe 600 index ended down 2.8% at 217.46, having reached an intraday low of 214.58. The U.K.'s FTSE 100 declined 2.6% to 4944.44, falling below the psychologically important 5000-level. This was the first close below the 5000 mark since July 2010. Germany's DAX fell 3.0% to 5216.71 and France's CAC-40 closed 2.6% lower at 2850.55. Greece's ASE Composite index fell 6.3% to 730.33, its lowest close in more than 18 years. As fears of a bank-funding crisis increased, banks sold off across the board. Societe Generale ended down 4.9%, BNP Paribas ended 5.1% lower and Commerzbank shed 4%. Deutsche Bank ended down 4.3% after it said it no longer expects to reach its EUR10 billion pretax profit target from operating businesses this year, due to the uncertainty caused by the European sovereign-debt crisis. In Athens, National Bank of Greece tumbled 14% and Piraeus Bank slumped more than 18%. Construction stocks, car makers and other companies closely tied to the economic cycle also fell heavily. Among these, shares of BMW AG fell 4.4% in Frankfurt, while cement producer Lafarge SA fell 8.5% in Paris. Airline shares were also lower, with Air France-KLM SA dropping 9.1% and International Consolidated Airlines Group SA losing 3.4%. In London, Xstrata PLC and Anglo American PLC both fell 3.4%.

Asian Markets

Asian shares ended lower after volatile trade Tuesday, amid fresh concerns Greece may default on its debt after euro-zone finance ministers delayed the approval of a much-needed loan disbursement at a protracted meeting Monday. Japan's Nikkei Stock Average shed 1.1% to 8456.12, while South Korea's Kospi ended down 3.6% at 1706.19 after falling as much as 6.3% intraday, playing catch up to the region's sharp losses Monday after a local holiday. Hong Kong's Hang Seng Index ended 3.4% lower at 16250.27, extending declines after European markets opened to losses. Mainland Chinese markets remained closed for a weeklong holiday. Exporters with exposure to the euro lost ground. In Tokyo, Sony ended down 0.7% at Y1,429 after touching a multi-decade low of Y1,370 intraday, while in Hong Kong retailer Esprit, which gets a significant portion of its revenue from Europe, shed 4.8%. Defying the weaker euro, Nikon ended up 3.4% on expectations its new single-lens reflex camera will significantly boost its top line and potentially offset the unfavorable macroeconomic environment, said Mitsuhige Akino, chief fund manager at Ichiyoshi Investment Management. Energy and commodities plays were broadly lower as oil and metals prices fell, with copper trading down as much as 4%. In Seoul, S-Oil dropped 10.6%, while Hong Kong-listed Cnooc shed 6.7%. Sumitomo Metal Mining shed 2.6% in Tokyo. Posco dropped 5% in Seoul and Jiangxi Copper erased 6.7% in Hong Kong.

Commodities

Base metals closed the day mostly lower on the London Metal Exchange Tuesday amid relatively subdued trade as market players continued to eye macro headlines. At the close, flagship three-month copper was down 2.7% at $6,800 a metric ton. Tin stood alone in positive territory, up 2.4% on the day at $20,990/ton. Base metal markets were quieter than usual Tuesday, as many market players were away from their desks during the LME's annual industry week. Oil futures settled at their lowest level in more than a year Tuesday, following equities lower because of renewed worries about the European debt crisis. The day began with a sharp selloff that had prices down more than 3.4%, though the market pared losses and briefly turned positive during testimony by Federal Reserve Chairman Ben Bernanke in which he urged lawmakers to help homeowners and said the central bank is prepared to take further action to help the economy if necessary. But by the end of the day, light, sweet crude for November settled down $1.94, or 2.5%, at $75.67 a barrel on the New York Mercantile Exchange, the lowest level since Sept. 23, 2010. Brent crude on the ICE Futures Europe exchange also struggled, dipping below the psychologically significant $100-a-barrel level, settling down $1.92, or 1.9%, at $99.79, its lowest settlement since Feb. 7. Precious metals slipped, with platinum and palladium falling to their lowest levels in more than a year as Federal Reserve Chairman Ben Bernanke indicated that the central bank isn't about to ride to the rescue of the struggling U.S. economy. The gold market was under additional strain, as Bernanke's comments downplaying the threat of inflation limited demand for the metal as a currency alternative. The most actively traded gold contract, for December delivery, fell $41.70, or 2.5%, to settle at $1,616 a troy ounce on the Comex division of the New York Mercantile Exchange. The most actively traded platinum contract, for January delivery, settled down 3.2% to $1,468.60 a troy ounce, a 21-month low. Palladium fell 5% to $564.15 an ounce, a 12-month low.

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