Stocks fall on woes in Europe

April 28, 2010 at 12:00a.m.

Associated Press

NEW YORK

Investors again are worried that debt problems in Greece and Portugal could threaten the global economic recovery.

Stocks plunged in the U.S. and Europe on Tuesday after Standard & Poor’s downgraded the debt of the two European countries. The Dow Jones industrial average fell 213 points, its biggest loss in almost three months. All the major market indexes were down about 2 percent.

The ratings downgrades also sent the dollar up more than 1.1 percent against the euro, hitting its highest level in about a year. At the same time, gold and Treasury prices rose as investors sought safer investments. The three often do not trade in the same direction.

Brian Peardon, a wealth adviser at Harrison Financial Group in Citrus Heights, Calif., said the small size of Greece and Portugal’s economies means their debt struggles are not yet a major problem. But if they were to default on their debt, other countries that hold their bonds also would suffer.

Debt-strapped countries also would likely find it harder to spend more to stimulate their economies and help feed the global economic recovery.

Standard & Poor’s downgraded Greece’s debt to junk status and lowered Portugal’s debt two notches to A-minus from A-plus. Greece already has admitted it can’t pay debts coming due shortly, and it has asked for a bailout from European neighbors and the International Monetary Fund.

The news about Greece and Portugal drew some of the market’s attention away from testimony by Goldman Sachs CEO Lloyd Blankfein and other top executives from the bank on Capitol Hill. The executives testified about the company’s dealings in mortgage-related securities during the credit crisis.

The Securities and Exchange Commission has charged Goldman with civil fraud, accusing it of misleading investors about investments tied to subprime mortgages.

Goldman was actually one of the relatively few winning stocks Tuesday. Analysts said investors were reassured by the fact there were few new details in the testimony. The stock rose $1.01, or 0.7 percent, to $153.04.