Stock markets in Europe and Asia fell sharply, and U.S. shares dropped less dramatically, as investors fled to safer investments after the Greek government closed banks Monday and the crisis over the country's membership in the Eurozone approached a point of no return.
France's CAC 40 index was hardest hit, falling 3.7%, while Germany's DAX fell about 3.6%. Japan's Nikkei was off 2.88% and Hong Kong's Hang Seng index was off nearly as much, even as European financial officials signaled their willingness to continue talks over a financial-aid package for Greece while simultaneously working to head off financial panic if no deal is reached.
"Obviously, the great uncertainty surrounds what happens next to the other peripheral countries with oppressive debt obligations," said Sam Stovall, U.S. equity strategist for S&P Capital Analytics.
So far, crisis seemed to have been largely contained as investors did not bail out of bonds of other Eurozone countries struggling with high indebtedness.
The benchmark 10-year government bond of Portugal, for instance, considered one of the most vulnerable of the so-called "peripheral" countries, traded at a yield of 3%, up only a fraction, according to FactSet Research Systems Inc., a sign that investors were not demanding dramatically higher rates to compensate for increased risk to that country's status as a Eurozone member.
Likewise, the Italian and Spanish government 10-year bonds both traded at under 2.5% and showed little sign of investor flight. Both countries are struggling with slow growth and high government indebtedness.
The Greek 10-year bond, in contrast, was hammered, rising nearly 3.7 percentage points to 14.36% in midafternoon.
The U.S. stock market seemed poised to decline, but not dramatically. The S&P 500 index was down 1.3%, or 27.2, to 2074.29.
Stovall noted that the Greek economy represents only 2% of European gross domestic product. He said that, historically, the initial phase of "market shocks," like the current one, have sent the Standard & Poor's 500 Index down a median of only 2.4% on the same day and that the market had fully recovered from the shock within 14 days.