Stocks Drop, Dollar Gains on Korea Clash

The shares plunged, dragging the MSCI Emerging Markets Index over five months, while the dollar and the Swiss franc rallied as the fight broke out between North and South Korea and Europe raised concern to the debt crisis spread. Copper slid as China banks came to the loan limits.

The MSCI index of shares in developing countries lost 2.6 percent to 500 from Standard & Poor's fell 1.5 percent at 2:11 pm in New York. The dollar and the franc appreciated against most of its peers. South Korean won slid forward over six months. yields on ten-year bond fell 4 basis points, while protecting the credit default swaps on European government debt rose to a record. Copper, lead and zinc fell, while gold advanced.

U.S. equities European shares continued lower after South Korea scrambled fighter jets and returned fire after North Korean bombing of Yeonpyeong island. China's largest banks are close to the annual loan quota and a plan to stop expanding their lending portfolios, according to four people briefed on the matter.

"We are in this very fragile state of growth," said Matthew Käufl, a Rochester, New York-based fund manager at Federated Investors Inc., who helps oversee the 341.3 billion U.S. dollars. "When you have these other issues - the crisis of sovereign debt in Europe, concerns about China's growth, geopolitical instability in North Korea and a scandal of massive insider trading - that will undermine confidence. That all is overshadowing recent economic data points in the U.S. "

Two-day slide

The S & P 500 fell for a second day in a row and extended his removal of a maximum of two years on November 5 to almost 4 percent. U.S. actions also retreated Wednesday as federal agents raided three hedge funds in an insider trading investigation. Exxon Mobil Corp., Caterpillar Inc. and Walt Disney Co. lost at least 2.2 percent to the decline of lead in 28 of the 30 stocks in the Dow Jones Industrial Average today, sending the indicator to 149 points.

The U.S. economy grew at a rate of 2.5 percent in the third quarter, more than the 2 percent previously estimated, as companies increased shipments abroad and Americans increased their spending. A separate report showed that purchases of existing homes fell 2.2 percent to an annual rate of 4.43 million, the National Association of Realtors said. Economists had projected sales would fall to a pace of 4.48 million, according to the median forecast in our News survey.

Day of fear '

"It is a day of fear," said Don Wordell, a fund manager at Atlanta-based management RidgeWorth Capital, which oversees about $ 62 billion. "There are concerns in Europe of the debt, the tension in Korea, research on hedge funds, the weak housing report. There is a huge amount of bad news to absorb. That will not encourage risk appetite."

Federal Reserve policy makers disagreed on monetary expansion to stimulate record this month, with most seeing a boost to growth and employment and a minority concerned about risks to inflation and the dollar. Most of the officials was meeting November 2 to 3 additional stock purchases and the maintenance of low asset prices and boosting interest rates, the Fed said in minutes of the meeting released today.

The Hang Seng China Enterprises Index fell 2.9 percent. a month before he won fell 3.5 percent, after losing as much as 4.2 percent.

The Stoxx Europe 600 Index fell 1.5 percent and the Stoxx 50 fell 2.6 percent, the highest since August. Banco Santander SA, Spain's biggest bank, lost 4.7 percent. Bank of Ireland Plc fell 23 percent, extending yesterday's 19 percent drop. Barclays Plc fell 2.1 percent after the U.S. Securities and Exchange said the UK lender received two transfers totaling about $ 1.3 billion of Lehman Brothers Holdings Inc. in September 2008 that might have violated securities laws.

Treasury Auction

Treasuries remained higher after the U.S. sold $ 35 billion five-year notes, the second of three auctions this week has a total of 99 billion U.S. dollars. The five-year yield fell four basis points to 1.38 percent.

Greece will have to make an "extra effort" to reduce its deficit to get more relief, the European Union and the International Monetary Fund officials said.

The extra yield investors demand to hold Spanish 10-year bond instead of retaining walls, reference values of the region's government, rose to a record euro was 236.1 points, beating the previous record 232.6 basis points reached on 17 June. Spain sold € 3260000000 three-day treasury bills and six months, less than the maximum target set for the auction, the Bank of Spain said.

Ireland Bonds

The yield gap Irish-German 10-year widened 45 basis points to 589 basis points, or 5.89 percentage points, while the Greek-German spread increased 13 basis points to 928 basis points. The Markit iTraxx Index SovX Western European credit default swaps, in 15 countries rose 4.5 basis points to a record 181.5, while contracts to ensure the Spanish and Portuguese banks riskier subordinated bonds jumped, according to CMA, a data provider.

The Irish Prime Minister Brian Cowen said last night he will call elections after his government's budget passes. Ireland decided to request emergency international aid on November 21 to help shore up their banks.

Spain risked a "major bank run" unless European officials act quickly to calm the financial turmoil in the nation, Pacific Investment Management Co. Co-Chief Investment Officer Mohamed A. El-Erian said in an interview on surveillance with Tom Keene. Deposits in Irish Banks Plc allies have been reduced by about 13 million euros since the beginning of the year, or about 17 percent, the bank said last week.

"The numbers so far have shown that the Irish banking system has been bled deposits," said El-Erian on a radio interview on surveillance with Tom Keene. "It will seriously undermine the prosperity of this country for a generation. The first thing to do is run as announced this weekend -. That is a great package of foreign aid and the steps by the Irish Government"

Euro slumps

The euro weakened 1.8 percent to $ 1.3387, and decreased by 2.4 percent against the yen. The dollar index, which tracks U.S. currency against six trading partners, rose 1.1 percent to 79,574, rising for a second day.

Copper futures for March delivery fell 1.3 percent to $ 3.713 a pound in New York, while oil fluctuated around $ 81.70 a barrel in New York. The S & P GSCI commodity index pared losses after falling 1.5 percent. Gold for immediate delivery advanced 1.6 percent to $ 1,379 an ounce.

China's regulators are monitoring bank balances of loans daily to ensure the official target of 7.5 trillion yuan (1.1 billion) in new loans for 2010 is not exceeded, the people said. The government of China in the last month stepped up a campaign to limit credit growth after inflation accelerated and increased housing prices.

Energy and basic resources stocks led declines in the MSCI World index. BHP Billiton Ltd., the world's largest mining company, fell 2.2 percent, while Vedanta Resources Plc fell 4.6 percent in London.