European Debt Crisis Looming Over Stock Markets

The benchmark BSE Sensex shed over 300 points following slump in global markets due to European Debt Crisis woes. Rating agency S&P has lowered Greece’s credit rating to BB+ from BBB+ on Thursday and warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. It also reduced Portugal by two steps to A- from A+.

With Greece inching closer to the brink of financial collapse, fear that the debt crisis will spread rattled markets for a second day Wednesday, while an extraordinary collection of global financial leaders gathered in Berlin to seek a solution.

Shares fell 2 percent or more across Europe and parts of Asia as investors increasingly wonder if Portugal, Spain and even Ireland may not be able to borrow the billions of dollars they need to finance their government spending.

Standard & Poor’s cut Greece’s debt to junk level on Tuesday, warning that bondholders could face losses of up to half of their holdings in a restructuring. The agency also downgraded Portugal’s debt by two notches.

Markets in Europe and on Wall Street fell sharply on Tuesday, and the trend continued in Asia Wednesday.

Japan’s Nikkei index was down 2.6 percent, while the Hang Seng index in Hong Kong was down 1.5 percent. In early trading Wednesday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, was down more than 2 percent; it dropped 3.7 percent on Tuesday.

The euro fell to $1.3165, its lowest level of 2010, from $1.3175 late Tuesday.

Trading in U.S. index futures suggested Wall Street stocks would open lower.

The yield on Greece’s benchmark 10-year bonds soared 1.4 percentage points to 11.1 percent — more than three times that of benchmark German bonds and just below those issued by Pakistan.

The yield on benchmark bonds issued by Ireland, Spain, Italy and Portugal also rose Wednesday.

The cost of insuring Greece’s, Portugal’s and Spain’s debt against a default are also at record levels — a clear sign that investors are shunning them.

Read the entire story on European Debt Crisis in The New York Times here.