U.S. futures lower on fear of soaring Italian debt
NEW YORK — Stock futures fell for the third straight day Tuesday as investors weighed the prospect that Italy, Europe's third-largest economy, could be the next country unable to meet its debt obligations. Spain, Europe's fourth-largest economy, also faces a budget crisis.
Government bond yields for Italy and Spain have shot up as investors lose confidence in the quality of their debt. That, in turn, adds to their high debt burdens. The spread between the yield on Italian 10-year bonds and the benchmark German ones hit 3.1 percent. Spain's rose to 3.42 percent.
Meanwhile, international lenders have not yet confirmed terms for a Greek rescue package. That has reignited concerns that Greece might fail to pay its debt and set off a chain reaction of European defaults.
Dow Jones industrial average futures fell 28 points, or 0.2 percent, to 12,461 in premarket trading. Standard & Poor's 500 index futures fell 6, or 0.4 percent, to 1,313. Nasdaq 100 futures fell 4 points, or 0.2 percent, to 2,363.
Italy had been seen as capable of weathering its heavy debt load in part because of a high personal savings rate among its citizens. But after concerns arose last week that Italian and Spanish banks might not withstand an upcoming stress test, stock in those countries' largest banks fell sharply.
At the center of the panic over European government debt is the fear that the European banking systems could be infected. That would affect a global network of financial institutions, potentially freeze up lending and affect U.S. companies that do business internationally.
Investors are also worried about U.S. debt. The looming Aug. 2 deadline to resolve contentious budget negotiations and signs that the U.S. economy could be in for an extended downturn are also pushing stock futures lower.
Meanwhile, the government reported Tuesday that surging oil imports pushed the U.S. trade deficit higher in May to $50.2 billion.
The Labor Department is expected to release its job openings and labor turnover survey for May later Tuesday morning. The report will offer some additional detail about the worsening U.S. job situation.
Tuesday's gloomy market outlook follows Monday's stock market plunge as investors reacted to the combination of Europe's spreading debt and the worsening U.S. economy. The Standard & Poor's 500 index dropped 24.31 points, or 1.8 percent, to 1,319.49.
The Dow Jones industrial average had its biggest percentage drop in nearly a month. It fell 151.44 points, or 1.2 percent, to 12,505.76. And after closing one point off its 2011 high late last week, the Nasdaq composite fell 57.19, or 2.0 percent to 2,802.62.