* U.S. and German financial regulation hurts risk appetite
* Euro plummets to four-year lows versuss dollar
* Wall St stocks down about 1 pct, led by banks
* U.S. bonds rally on flight to safety
By Manuela Badawy
NEW YORK, May 18 (Reuters) - The euro fell to a four-year
lows on Tuesday and U.S. stocks sank more than 1 percent on
worries that tighter financial regulation stretching from Wall
Street to Frankfurt will hinder a global economic recovery.
The price of crude oil fell to a seven-month low, hurt by
the stronger U.S. dollar and as investors' aversion to risk
increased on rising fears that a new chapter could unfold in
the European debt crisis. U.S. Treasury prices rose on the
flight to safety.
Germany, in an attack on the financial speculation on which
it blames much of the euro zone's debt crisis, announced a ban
beginning at midnight on naked short-selling in shares of the
country's 10 most important financial institutions, as well as
in some euro zone government debt and trading in credit default
swaps on that debt. See [].
The euro fell to to $1.2161 <EUR=> ,the lowest level since
April 2006 after the ban was announced, which traders said
increased uncertainty in the financial markets.
"This announcement by the German government has given the
view to the market that perhaps there's another problem in
Europe," said John Brady, a senior vice president at MF Global
in Chicago.
Brady noted that Greece's debt problems had been exposed
only after a new government took office. "Now with Germany
doing this, there's a belief that there may be another problem
in Europe that has yet to be uncovered."
U.S. stocks were also pressured by proposed new rules from
the U.S. Securities and Exchange Commission and financial
exchanges to curb trading when markets plunge. The proposal
follows the roughly 700-point drop in the Dow industrials in a
matter of minutes on May 6. For details see []
The Dow Jones industrial average <> fell 113.59 points,
or 1.07 percent, at 10,512.24. The Standard & Poor's 500 Index
<.SPX> closed down 16.07 points, or 1.41 percent, at 1,120.87,
while the Nasdaq Composite Index <> dropped 36.80 points,
or 1.56 percent, at 2,317.43.
Financial stocks led the way down, with the S&P financial
index <.GSPF> falling 2.8 percent. JPMorgan Chase & Co <JPM.N>
was down 2.1 percent at $39.00.
Shares of technology companies, which tend to rely heavily
on overseas sales, were also among the biggest losers. An index
of semiconductor shares <.SOXX> lost 2.9 percent, while Intel
Corp <INTC.O> dropped 2.7 percent to $21.43.
Germany said the ban on some naked short selling will run
through March 31, 2011. In naked short selling, a trader sells
a financial instrument short, betting that its price will fall,
without first borrowing the instrument or ensuring that it can
be borrowed, as would be done in a conventional short sale.
"Germany decided it was going to ban naked short selling.
So if you want to express your view but can't sell European
equities or bonds, your only choice is to sell the currency and
take your money elsewhere," said Michael Woolfolk, senior
currency strategist at BNY Mellon in New York.
The euro <EUR=> fell 1.51 percent at $1.2206 from a
previous session close of $1.2393.
Against the Japanese yen, the dollar <JPY=> fell 0.26
percent at 92.34.
"The announcement in Germany was aimed at limiting
intra-day market volatility but saw the euro extending its
declines," said Vassili Serebriakov, at Wells Fargo in New
York. "The proof is always in the markets."
The German ban came on the same day as European Union
finance ministers voted through the draft text on tighter
regulation of hedge funds and private equity firms.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
31/32, with the yield at 3.37 percent. The 2-year U.S. Treasury
note <US2YT=RR> rose 3/32, with the yield at 0.745 percent,
while the 30-year U.S. Treasury bond <US30YT=RR> gained 60/32,
with the yield at 4.25 percent.
Crude oil <CLc1> prices settled down 67 cents, or 0.96
percent, to $69.37 per barrel, and spot gold prices <XAU=> fell
70 cents, or 0.06 percent, to $1,222.00.
The Reuters/Jefferies CRB Index <.CRB> rose 1.73 points, or
0.68 percent, at 254.93.
Ahead of the news from Germany, the FTSEurofirst 300
<> index of top European shares closed up 1.3 percent at
1,026.64 points. The gains snapped two consecutive days of
declines, and came after Greece received funds from the
European Union to repay its immediate debt. Banks rebounded and
were among the best performers after a flat performance on
Monday.
(Additional reporting by Vivianne Rodrigues and Emily Flitter;
Editing by Leslie Adler)
