NEW YORK — A growing sense that Europe’s leaders have failed to contain that region’s debt crisis swept through financial markets Wednesday.
It started with the euro dropping below $1.30 for the first time since January and a jump in borrowing costs for Italian government debt. By the end of the trading day, the Dow had lost 131 points, European stock indexes fell as much as 3 percent and gold dropped $76, ending below $1,600 an ounce for the first time in more than two months.
Investors dumped assets that might be seen as risky and piled into the most conservative ones around: the dollar and U.S. government debt.
The market appears to be in “sell now and ask questions later mode,” said John Canally, investment strategist at LPL Financial.
Since European leaders reached an agreement to rein in future government budget deficits last week, investors and credit-rating agencies have criticized the deal for failing to address current problems.
“Markets are impatient,” Canally said. “They still can’t see how all these efforts will get this situation stabilized.”
Italy had to pay higher borrowing rates in its last bond auction of the year Wednesday. The eurozone’s third-largest economy paid 6.47 percent interest to borrow $3.95 billion for five years, up from 6.30 percent just a month ago.
The higher rates make it more expensive for Italy to borrow money and reflect rising doubts that the country will be able to repay its debts.
The Dow Jones industrial average fell 131.46 points, or 1.1 percent, to close at 11,823.48. Caterpillar fell 4.4 percent, the worst drop among the 30 stocks in the Dow.
Canally said the fear that another bank failure will lead to a financial crisis as Lehman Brothers did in 2008 overshadows everything else. Markets are so jittery now that traders see a slight drop in the euro or a small rise in Italian government bond yields as a step toward a wider collapse.
The Standard & Poor’s 500 fell 13.91 points, or 1.1 percent, to 1,211.82. The Nasdaq composite fell 39.96, or 1.6 percent, to 2,539.31.
Gold dropped 4.6 percent to settle at $1,586, the lowest closing price since July. Commodity prices tend to fall when the dollar gains strength because a stronger dollar makes it more expensive for investors using other currencies to buy commodities, which are priced in dollars.
