NEW YORK (Bloomberg) - The strongest dollar in nearly 12 years versus the euro and the spectre of higher US interest rates fuelled a sell-off in global equities that sent the Standard & Poor's 500 Index to its biggest slide since Jan 5. Oil and copper declined.
The S&P 500 fell 1.7 per cent at 4pm in New York, slipping below its average price for the past 50 days and erasing its gains in 2015. The Dow Jones Industrial Average lost 328 points in its biggest slide since Jan 5.
The Stoxx Europe 600 Index lost 0.9 per cent. The euro weakened 1.4 per cent to $1.0704 and a gauge of 20 emerging-market currencies fell for a ninth day. Yields on 10-year German securities dropped to a record, as the yield difference between 10-year Treasuries and bunds hit the widest since 1989. US crude slid below US$49 a barrel while copper dropped the most since January.
Federal Reserve Bank of Dallas President Richard Fisher said the central bank should begin to raise rates as the labour market improves. While policymakers from Sydney to Tokyo, Zurich and Frankfurt are cutting rates and buying government bonds to stimulate growth, the Fed stands out in accepting a higher exchange rate as a sign of economic strength. The dollar has rallied this year versus 14 of 16 major counterparts.
"A continuation of dollar strength and euro destruction is certainly raising some concerns," said Mr Michael James, a Los Angeles- based managing director of equity trading at Wedbush Securities. "How much is a stronger dollar going to impact the bottom lines of US companies? I don't think there was any one specific event or item that caused this. It has more to do with sentiment and emotion than valuations."
Selling in equities was broad based, with all but three of the 24 developed-nation indexes retreating. The MSCI All-Country World Index sank 1.7 per cent, the most in two months, while nine shares fell for every one that gained in the benchmark for US stocks.
The S&P 500 retreated 1.6 per cent last week, the most since January, as data showed the jobless rate reached the central bank's range for what it considers full employment. Policymakers next meet on March 17 and 18. The index has entered the seventh year of a bull market, pushing valuations near a five-year high. It is lower by less than 0.7 per cent in 2015.
The dollar rose against all but two of its 16 major peers Tuesday, touching US$1.0697 per euro, the strongest since April 2003. Mexico's peso weakened to a record, while the yen touched the lowest in 7 1/2 years. The greenback climbed to parity with Switzerland's franc for the first time since the Swiss National Bank removed a currency cap against the euro in January.
"The dollar's going up so much so fast you wonder what it does to US economic growth down the road, to profitability," said Mr Jim Paulsen, chief investment strategist at Wells Capital Management, which oversees US$338 billion. "Fisher made comments - that gives more support around the idea that the Fed window has indeed moved up, which is bringing a more aggressive bid to the dollar and more angst for equity investors."
The benchmark 10-year Treasury yield dropped six basis points, or 0.06 percentage point, to 2.13 per cent. That follows a five basis-point decline Monday. The 10-year German bund yield slid eight basis points to 0.23 per cent.
The lower rates weighed on bank and insurance stocks, sending financial shares in the S&P 500 down 2.1 per cent. JPMorgan Chase & Co. and Goldman Sachs Group retreated at least 2.5 per cent to pace declines.