* US stock indexes tumble nearly 3 percent
* Euro hits 8-mo low vs dollar on euro zone debt problems
* Greek, Portugal spreads, CDS widen; dollar firmer
* Oil, gold prices fall sharply
(Updates with U.S. close)
By Al Yoon
NEW YORK, Feb 4 (Reuters) - Global stocks plunged and the
euro hit an eight-month low against the dollar on Thursday as
concern over Greece's fiscal woes spread to other highly
indebted euro zone countries.
An intensified focus on sovereign credit and rising
government deficits fueled widespread investor flight from
risk, boosting U.S. Treasuries and the Japanese yen as safe
havens.
The European Union said on Wednesday that Greece's plans to
cut its budget gap from 12.7 percent of gross domestic product
in 2009 to below 3 percent in 2012 would not be easy to
implement but vowed to hold Athens to its pledges. The
persistent pall over Greece led investors to reduce risk
elsewhere, especially in debt-burdened Spain and Portugal.
"This is a sovereign problem, and it's hitting
everything," said Keith Springer, president of Capital
Financial Advisory Services in Sacramento, California.
"If other European countries are having trouble like
Greece, then it's a big problem for banks, and the banks are
the foundation for everything. European banks will be in
trouble and that will carry over to all stocks."
The euro fell more than 1 percent to $1.3739 <EUR=> after
earlier hitting its lowest in more than eight months at
$1.3729. The dollar <.DXY> rose 0.75 percent against a basket
of major currencies but fell 2.2 percent against the yen, to
88.93 yen.
Political tension in Portugal over a regional spending bill
and a climb-down by the Spanish government over pension reform
added to the woes of peripheral euro zone states facing huge
challenges to curb budget shortfalls. For details see
[]
Portuguese five-year credit default swaps hit a record high
of 216,000 euros per 10 million euros of exposure, from 196,200
on Wednesday. Greek and Spanish CDS also rose.
Global stocks slumped as the rising dollar hurt commodities
prices and a surprising rise in unemployment insurance claims
underscored a slack U.S. recovery.
First time jobless claims in the United States rose by
8,000 last week to 480,000, bucking the median forecast for a
drop of 10,000. The weekly number is now the highest since
mid-November and an ominous sign to what had been a positive
trend since March.
The United States on Friday is likely to report businesses
added 5,000 jobs in January, after a loss of 85,000 in
December, according to the median forecast in a Reuters poll.
"The market significance of the January employment report
has been significantly diminished by recent international
economic developments, particularly the perceived heightening
of sovereign default risks in Europe," Deutsche Bank economists
said in a report.
The Dow Jones industrial average <> plunged 268.37
points, or 2.61 percent, to 10,002.18. The Standard & Poor's
500 Index <.SPX> fell 34.17 points, or 3.11 percent, to
1,063.11 and the Nasdaq Composite Index <> slid 65.48
points, or 2.99 percent, to 2,125.43.
U.S. Steel Corp <X.N> fell 5.9 percent to $44.07 as the
stronger dollar weakened commodity prices. The S&P materials
sector index <.GSPM> dropped 3.8 percent to its lowest level
since early November.
U.S. light sweet crude oil <CLc1> fell $4.01, or 5.21
percent, to $72.97 per barrel,, and spot gold prices <XAU=>
rose 15 cents, or 0.01 percent, to $1063.20. The
Reuters/Jefferies CRB Index <.CRB> declined 2.55 percent.
The MSCI world equity index <.MIWD00000PUS> fell 2.84
percent, its lowest since Nov. 4. It has lost more than 8
percent from Jan. 11, the peak of a 10-month, 80 percent rally.
The pan-Europe FTSEurofirst 300 index <> lost 2.75
percent.
In Europe. Santander <SAN.MC>, the euro zone's biggest
bank, lost more than 9 percent after traders pointed to
concerns over the outlook for crisis-hit Spain and worries the
bank is not doing enough to address its property exposure.
Japanese stocks fell 0.46 percent <> with Toyota Motor
<6753.T> sliding further on its recall woes. Emerging stocks
<.MSCIEF> dropped 2.63 percent.
Demand for U.S. Treasury debt pushed yields lower amid a
retreat in global stocks and fears over potential defaults by
European governments and Friday's labor report.
"It definitely gives more fuel to the rally" in Treasuries,
said James Demasi, chief fixed-income strategist at Stifel
Nicolaus & Co in Baltimore. "Over the course of the week,
people had built in enough concession for next week's auction
in Treasuries. This gives them a reason to jump back in."
Yields on benchmark 10-year Treasury notes <US10YT=RR>
declined by 0.11 percentage point to 3.60 percent.
(Additional reporting by Neal Armstrong and Emily Flitter;
Editing by Dan Grebler)
