Stock Futures Plummet, Market Set For Lower Open

Stock futures plummeted yesterday  as fears of a global economic slowdown grow and tensions rise on the Korean peninsula.

Dow Jones industrial average futures eased off their lows, but were still down nearly 2 percent.

The euro approached a four-year low, which it set last week. The euro dropped to $1.2192, bringing it within a penny of the low of $1.2146 it touched last week.

Traders have been rapidly selling the euro in recent weeks because of uneasiness over whether steep budget cuts in countries like Greece, Spain and Portugal will drag down an economic recovery on the continent. Italy was set to become the latest European nation to announce spending cuts to reduce its deficit.

Major European indexes tumbled.

“Market participants feel like they’re walking on eggshells,” said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y. “Every small piece of potentially bad news is being exaggerated and mentally being fast-forwarded to the worst-case scenario.”

European Union leaders warned yesterday that the continent’s economy would stagnate unless governments make major reforms to promote growth. The problem is, though, that large debts in some countries make it difficult to implement stimulus measures to rally economies.

With investors flocking out of stocks, oil and the euro, U.S. Treasury prices again surged. The perceived safety of U.S. government bonds pushed yields and interest rates lower. The benchmark 10-year note’s yield fell to its lowest level since April 2009.

World markets were also hurt by reports that North Korean leader Kim Jong Il ordered his military to combat alert because of rising tensions on the Korean peninsula. Major indexes in Japan and Hong Kong fell more than 3 percent.

Ahead of the opening bell, Dow futures fell 190, or 1.9 percent, to 9,853. Standard & Poor’s 500 index futures fell 24.00, or 2.2 percent, to 1,047.00, while Nasdaq 100 index futures fell 34.25, or 1.9 percent, to 1,778.25.

Yesterday expected sell-off follows a sharp, late-session drop Monday. The Dow lost 80 points in the last 15 minutes of trading Monday to close down nearly 127 points. The index is now trading at its lowest levels since February.

Aside from the European debt crisis, investors were also concerned about a bill in Congress that will overhaul financial regulation. The Senate and House are reconciling their separate versions of the proposed reform.

Investors disregarded a better-than-expected report on existing home sales from April. Such upbeat economic reports had helped push stocks consistently higher earlier in the year.

New reports due out yesterday are expected to show consumer confidence grew this month and home prices in 20 major metropolitan markets rose in March.

Economists polled by Thomson Reuters forecast the S&P/Case-Shiller Home Price index rose 2.4 percent in March from the year-ago period. A recovery in the housing market has been slow and bumpy and analysts are unsure whether the end of a home buyer tax credit in April will lead to further weakness in the market in the coming months.

Separately the Conference Board is expected to report its consumer confidence index for May rose to 59 from 57.9 last month. Growing strength in the U.S. consumer could provide some relief to weary investors because the country’s economy is predominantly driven by consumer sales.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.14 percent from 3.20 percent late Monday. It fell as low as 3.07 percent, its lowest level since April 2009.

The yield on the 30-year bond briefly fell below 4 percent for the first time since October, before rising slightly. It is down to 4.04 percent from 4.08 percent late Monday.

Oil fell $2.37 to $67.84 a barrel in electronic trading on the New York Mercantile Exchange.

Britain’s FTSE 100 dropped 2.5 percent, Germany’s DAX index tumbled 2.7 percent, and France’s CAC-40 plummeted 3.1 percent. Japan’s Nikkei stock average fell 3.1 percent.