Stock futures retreat on fresh European worries

[May 19, 2010]  NEW YORK (AP) -- Stock futures tumbled Wednesday, a day after Germany banned a form of short selling as part of an effort to try to stabilize Europe's weakening currency.

However, the move has not brought relief to investors. In their first chance to react to the move, European markets plummeted.

The euro hit a new four-year low of $1.2146 before rebounding slightly to $1.2183.

European Union leaders said following the German ban that the 16 countries using the euro should act together to ban certain types of short-selling. Germany made its move unilaterally, which could be stoking fears that it or other countries like France might bail on the common currency.

Markets worldwide have been tracking the euro lower in recent weeks because it is seen as a proxy for confidence in Europe's economy. Investors are concerned that severe budget cuts in countries like Greece, Portugal and Spain will significantly slow any recovery in Europe. That slowdown could then spread globally, halting a worldwide rebound.

European leaders agreed last week to a nearly $1 trillion bailout program to help countries that are facing mounting debt problems. The deal was initially embraced by investors. But traders quickly worried that the austerity measures tied to the rescue package would upend a rebound.

Ahead of the opening bell, Dow Jones industrial average futures fell 84, or 0.8 percent, to 10,406. Standard & Poor's 500 index futures fell 10.00, or 0.9 percent, to 1,108.70, while Nasdaq 100 index futures fell 16.75, or 0.9 percent, to 1,871.25.

Britain's FTSE 100 dropped 2.3 percent, Germany's DAX index fell 2.6 percent, and France's CAC-40 plunged 2.9 percent.

Germany said late Tuesday it is banning "naked" short selling, which occurs when traders bet on a stock or investment that they don't own. The ban covers government debt certificates, credit default swaps and shares of several financial companies. The government said it was imposing the rule in hopes of keeping the financial markets stable.

The euro immediately began to retreat after the ban was announced and that dragged down U.S. markets at the end of Tuesday's trading session. The Dow fell nearly 115 points after being up nearly 93 points early in the day.

Stocks had risen early Tuesday after some upbeat domestic economic reports on the housing market and inflation and better-than-expected earnings from top retailers. Those gains were fleeting though as attention returned to Europe's currency crisis.

Traders have largely been ignoring the continued signs of economic growth in the U.S. in recent weeks after sending markets higher earlier this year on similar reports.

Another report is due out Wednesday on inflation. The Labor Department is expected to say prices at the consumer level rose just 0.1 percent last month, according to economists polled by Thomson Reuters. The report is due out at 8:30 a.m. EDT.

The Consumer Price Index, which measures fluctuations in prices of goods, rose 0.1 percent in March.

Tame inflation allows the Federal Reserve to keep its benchmark interest rate at historic lows as part of ongoing efforts to further stimulate the economy.

Wednesday's CPI report comes a day after the Producer Price Index, which measures prices at the wholesale level, fell 0.1 percent last month.

Meanwhile, bond prices traded in a narrow range. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.35 percent late Monday. Bond yields have been tumbling in recent weeks as investors flock to safe-haven investments like Treasurys.

The yield on the 10-year note climbed above 4 percent last month.

[Associated Press; By STEPHEN BERNARD]

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