Stocks reel on global economy fears

Stocks opened sharply lower yesterday amid fresh fears about the global economy. The Dow Jones industrial average fell 144 points, or 1.1 per cent, to 12,513, at the start of trading. The Standard & Poor's 500 index fell 19, or 1.4 per cent, to 1,324. Every industry group in the S&P 500 fell. The Nasdaq composite fell 36, or 1.3 per cent, to 2,824. Greece is expected to receive a second financial rescue package to help the country avoid a default on its debts. But there are growing concerns that the debt crisis is spreading to larger countries like Italy and Spain. Spain is Eur-ope's fourth largest economy. Already, bond yields for the two countries have risen sharply. Italy's largest banks, UniCredit and Intesa, fell sharply on Friday, sparking fears that even aid from international lenders may not be enough to stop a broad deterioration of the European economy. Article continues below "What the European Union is trying to do is keep the problem contained at a sovereign level and not have the infection spread to the banking system," said Jack Ablin, chief investment officer at Harris Private Bank. "To see a bank drop that much, that fast suggests there may be a breach." Stress-test failures Some investors believe some of Italy and Spain's financial institutions might not pass a Friday stress-test for European banks. The European debt issues follow disappointing US employment news and a setback in negotiations over the country's debt limit. A government report on Friday saying the economy created far fewer jobs than expected in June compounded fears that the US economy was in even worse shape than previously thought. The unemployment rate rose to 9.2 per cent. Weekend budget talks between Republicans and Democrats stalled, raising the possibility that the US might reach its debt limit before a deal to raise that ceiling. News Corp fell 5 per cent, the most byany company in the S&P 500, as its phone hacking scandal threatened the approval of a proposed takeover of British Sky Broadcasting. Settlement Wells Fargo fell 1.3 per cent after the bank offered to settle for $125 million (Dh459.1 million) with pension funds that accused it of not warning investors about risky mortgage-backed securities. Semiconductor company KLA-Tencor Corp was one of the few stocks that rose, jumping 3 per cent and the most of any S&P 500 stock days after an analyst upgrade. UBS analyst Steven Chin raised the company's rating to ‘Buy' from ‘Neutral', saying its business would pick up next year. AIG fell 1.5 per cent after announcing it would fire one or more of the bankers it used for its recent public stock offering when it sells more stock later this year. Egyptian shares plunge Egyptian stocks retreated the most in almost three months as protests continued for a fourth day to demand the government speed-up changes and the prosecution of Mubarak-era officials. Orascom Construction Industries, Egypt's biggest publicly traded builder, fell the most since March. Commercial International Bank Egypt SAE lost 4 per cent. The benchmark EGX 30 Index declined 2.9 per cent, the most since April 18, to 5,116.21 at close in Cairo.