May 5 (Bloomberg) -- The MSCI World Index of stocks erased its 2010 gain, the euro weakened to a 14-month low and Treasuries rallied on concern Europe’s debt crisis is worsening. U.S. equities pared losses on signs of an improving economy.
The MSCI gauge of equities in 23 developed nations declined 1.2 percent at 10:40 a.m. in New York, leaving it down 1 percent for the year. The Standard & Poor’s 500 Index fell 0.7 percent to the lowest since March after sliding as much as 1.3 percent. Spain’s IBEX 35 Index slumped 2.3 percent to the lowest since July. The euro lost more than 1 percent against the dollar for a second day. Copper slid below $7,000 a metric ton, wile nickel tumbled 11 percent and oil dipped below $80 a barrel. The 10- year Treasury yield decreased 4 basis points to 3.55 percent.
European Central Bank council member Axel Weber said today there is a threat of “grave contagion effects” as Moody’s Investors Service warned it may cut Portugal’s debt rating and three people were killed in an Athens fire set during protests against Greek austerity measures. More than $1.1 trillion was wiped from global stocks yesterday amid concern that rescues similar to Greece’s 110 billion-euro ($143 billion) package will be needed in Spain and Portugal.
“The reason we have to worry is, let’s face it, this is a global environment,” said Jason Pride, director of investment strategy at Glenmede in Philadelphia, which manages $18 billion. “The primary concern is the contagion risk associated with Greece and some of the other problematic nations in Europe and the follow-on effects on long-term economic growth. We may be in for more of a rough and volatile period.”
The S&P 500 added to losses from yesterday’s 2.4 percent rout, its biggest since February, as concern about contagion from Europe’s debt crisis overshadows growing evidence the U.S. economic recovery is gaining momentum. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, held at an almost four-year high of 55.4 for a second month. A report from ADP Employer Services showed private employers added 32,000 jobs in April, a third straight month of gains.
The benchmark index for U.S. stock options rose a second day to reach the highest intraday level in three months. The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 4 percent to 24.88. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from a record 80.86 in November yet above its 20 average over its 19-year history.