Banks pull stocks lower as Brexit continues global rout

By Hilary Russ

NEW YORK (Reuters) - Britain's shock vote to leave the European Union roiled global markets for a second day on Monday, hammering U.S. and European banks, lifting bond and gold prices, and dragging the British pound to a 31-year low.

U.S. stocks were sharply lower, following European markets, pulled down by banking stocks amid uncertainty over London's future as the region's financial capital.

The S&P financial index <.SPSY> fell nearly 3 percent. Declines for JPMorgan and Bank of America grew as the day wore on, with those shares down 3.56 percent and 6.27 percent respectively.

The Dow Jones industrial average <.DJI> fell 301.63 points, or 1.73 percent, to 17,099.12, the S&P 500 <.SPX> lost 42.24 points, or 2.07 percent, to 1,995.17 and the Nasdaq Composite <.IXIC> dropped 127.83 points, or 2.72 percent, to 4,580.15.

 

An index of European bank shares <.SX7P> fell 7.67 percent. Royal Bank of Scotland fell 15.1 percent while Barclays shed 17.35 percent, with both paring losses slightly through the day.

Italian banks also suffered. UniCredit fell 8.09 percent. The government was looking at options to help its banks and prevent further share price falls.

European stocks <.FTEU3> took a beating for a second day, down 3.7 percent. Banks at a seven-year low helped push London's top share index <.FTSE> down by 2.55 percent, shedding nearly 100 billion pounds (US $132 billion) and 5.6 percent over two days.

"Markets already appear to be pricing in a full-blown recession in the U.K. and rising recession risk in the rest of Europe," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.

British finance minister George Osborne sought to reassure markets, saying the world's fifth-largest economy was strong enough to cope with the Brexit-inspired volatility, but the positive impact on sterling was only fleeting.

But sterling > sank to its lowest level against the U.S. dollar since September 1985, falling 3.6 percent to $1.310, surpassing its Friday low.

Yields on 10-year British government debt fell below 1 percent for the first time >.

Standard & Poor's Ratings Service stripped Britain of its last remaining triple-A credit rating, on Monday chopping it two notches to double-A and warning more downgrades could follow.

Fitch Ratings and Moody's Investors Service pulled their top rating long before the referendum campaign began.

MSCI's all-country world stock index <.MIWD00000PUS> fell 2.3 percent.

Yields on government debt fell again. German 10-year bond yields >, the benchmark for euro zone borrowing costs, fell as low as minus 0.11 percent but held above Friday's record low of almost minus 0.17 percent.

Spanish borrowing costs slid as election gains for the centre-right People's Party raised hopes of an end to the country's political deadlock.

In the scramble for safe-haven assets, U.S. Treasury yields hovered near four-year lows. The 10-year note > fell 12.4 basis points to 1.455 percent, sliding further after S&P's downgrade of the UK.

"The U.S. remains a very powerful place where people can find a safe haven. Foreigners are also getting a kick with the rise in the dollar," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

The euro >, also seen vulnerable to the exit from the EU of its second-largest economy, fell 1.2 percent to as low as $1.098. The yen firmed as high as 101.95 per dollar >. The dollar index, which tracks the greenback's value against six currencies <.DXY>, was up 1.1 percent.

The rallying dollar helped drag oil prices down. U.S. crude oil futures settled at $46.33 per barrel, down $1.31 or 2.75 percent.

(Aditional reporting by Yashaswini Swamynathan in Bengaluru, Richard Leong and Barani Krishnan in New York; Editing by Toby Chopra and Nick Zieminski)