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Analysts pointed across the Atlantic to explain the sharp downturn in U.S. markets that saw the Dow Jones industrial average shed more than 2 percent Tuesday. The Standard & Poor's 500 dropped 2.38 percent and the Nasdaq nearly 3 percent in a trading session undercut by Greece's debt crisis, which some expect will spread to Spain -- a far larger problem -- and possibly Portugal.
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Stocks turned lower in Asia and Europe along the same fault lines, namely the fear Greece defaulting on its debt could weaken the euro, the 16-nation currency that is less than 10 years old and ties powerful economies, like Germany and France, to the likes of Greece and Luxembourg.
As fear spreads that a major market could lose its purchasing power, the dollar soared Tuesday, the dollar index jumping 1.35 percent. On one edge of the sword Europe loses its buying power; on the other, exporters to Europe lose their selling power, a bad turn for wheat farmers in Kansas and automobile makers in Detroit.
It takes a jolt to balance the equity equation because U.S. markets have run up, more or less unimpeded since March of 2009, and all that optimism tends to outrun the support, like a cartoon character who has outrun the cliff.
"In general, the American markets have been ignoring a series of headwinds. To use a catch phrase, they've had their heads in the sand a little bit. ... This is a reminder that this is not a fully recovered global economy," Dan Greenhaus, chief economic strategist at Miller Tabak, told The Washington Post.
Under the annals of fine tuning, lawmakers in Washington Tuesday removed a thorn from the financial reform package, tossing out the $50 billion fund that was to finance the liquidation of firms considered too big to fail -- but failing, nonetheless.
"I'm satisfied, as I believe my colleague from Alabama is, that we've reached an agreement on the too-big-to-fail provisions," said Senate Banking Committee Chairman Christopher Dodd, referring to Sen. Richard Shelby, R-Ala., in a speech on the floor of the Senate.
Amendments are expected. The New York Times reported Sen. Barbara Boxer's proposal to mandate liquidation of firms that fall into receivership is expected to meet with bipartisan support, but an amendment to limit bank size proposed by Sens. Sherrod Brown, D-Ohio, and Ted Kaufman, D-Del., would certainly provoke the banking industry to unleash the lobbyists.
That amendment would limit each bank under Federal Deposit Insurance Corp. jurisdiction to no more than 10 percent of the nation's deposits. It would also force a limit on non-deposit liabilities to no more than 2 percent of gross domestic product, the Times reported.
In international markets Wednesday, positive sentiment was scarce. While the Nikkei 225 index in Japan was closed for a holiday, the Shanghai composite index in China added 0.77 percent. The Hang Seng index in Hong Kong fell 2.1 percent, while the Sensex in India lost 0.29 percent.
In Australia, the S&P/ASX 200 fell 1.33 percent.
In midday trading in Europe, the FTSE 100 index in Britain lost 0.27 percent, while the DAX 30 in Germany slid 0.19 percent. The CAC 40 in France fell 0.37 percent, while the pan-European DJ Stoxx 50 rose 0.06 percent.
