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Stocks slump as fears grow over UK's Brexit vote

Published 05/07/2016

The Dow Jones industrial average fell 108.75 points to 17,840.62
The Dow Jones industrial average fell 108.75 points to 17,840.62

US stocks slumped on Tuesday as investors grew fearful over the health of the British financial system.

Looking for safety, they flocked to Treasury notes and pushed the yields on long-term government bonds to all-time lows. Energy companies took the biggest losses as oil prices tumbled.

Investors were jolted after three UK financial firms stopped trading in their commercial property funds because large numbers of investors were trying to liquidate their holdings.

Stocks mostly fell, although investors bought shares of companies seen as safe plays, like household goods makers and utilities. Bond yields plunged, with the 10-year and 30-year Treasury yields reaching record-low levels as demand for Treasuries rose and prices jumped.

It was an abrupt end to a big four-day rally for stocks, and a reminder that the effects of Britain's vote to leave the European Union has left markets deeply unsettled. Answers may be very slow in coming.

The Dow Jones industrial average fell 108.75 points, or 0.6%, to 17,840.62. The Standard & Poor's 500 index slid 14.40 points, or 0.7%, to 2,088.55. The Nasdaq composite lost 39.67 points, or 0.8%, to 4,822.90. US markets were closed Monday for the Independence Day holiday.

Stocks took a steep two-day plunge last month after Britain voted to leave the European Union. Over the last four days they recovered almost all of the ground they lost after the vote.

On Tuesday the trouble began when Aviva Investors, Standard Life and M&G Investments stopped trading in their commercial property funds. The firms said they were protecting other investors who wished to remain in their respective funds. The Bank of England said it eased bank rules to allow them to lend up to £150 billion (200 billion dollars) to households and businesses.

The pound fell to 1.3032 dollars from 1.3259 dollars on Tuesday, its weakest in 31 years.

The yield on the 10-year note dropped to 1.38% in late trading, down from 1.45% late on Friday. It went as low as 1.36% during the day, according to Tradeweb. The yield on the 30-year note fell to 2.16%. It was 2.24% on Friday.

According to Tradeweb, the yield on the 10-year and 30-year Treasury notes are both at all-time lows. They've tumbled this year as worries about the global economy, the US Federal Reserve and now Britain have investors craving safety.

Outside the US, stock indexes were mostly lower. France's CAC 40 fell 1.7% and Germany's DAX lost 1.8%. However Britain's FTSE 100 picked up 0.4%. Japan's benchmark Nikkei 225 slipped 0.7% to finish and South Korea's Kospi fell 0.3%. Hong Kong's Hang Seng dipped 1.4%.

The dollar fell to 101.49 yen from 102.58 yen. The euro slid to 1.1075 Outside the U.S., stock indexes were mostly lower. France's CAC 40 fell 1.7 percent and Germany's DAX lost 1.8 percent. However Britain's FTSE 100 picked up 0.4 percent. Japan's benchmark Nikkei 225 slipped 0.7 percent to finish and South Korea's Kospi fell 0.3 percent. Hong Kong's Hang Seng dipped 1.4 percent.

The dollar fell to 101.49 yen from 102.58 yen. The euro slid to 1.1075 dollars from 1.1125 dollars.

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