Trader Michael Capolino works on the floor of the New York Stock Exchange, Friday, Aug. 10, 2018. Stocks are opening moderately lower on Wall Street following steeper losses in Europe, where investors worried about a sharp drop in Turkey's currency. (AP Photo/Richard Drew)

Turkish turmoil sends US and European stocks sharply lower

August 10, 2018 - 12:41 pm

NEW YORK (AP) — Stocks are skidding on Wall Street Friday, following even sharper drops in Europe, as investors worried about the financial stability of Turkey. The Turkish lira nosedived again following concerns about the country's economic policies and higher sanctions from the U.S.

European banks are taking some of the worst losses. Seeking safety, investors are buying U.S. dollars and government bonds. The rising dollar helped U.S-focused companies but hurt big exporters. Rising bond prices are sending interest rates lower, hurting banks.

KEEPING SCORE: The S&P 500 index slid 17 points, or 0.6 percent, to 2,835 as of 1:30 p.m. Eastern time. That threatened to wipe out the S&P's gains from earlier this week.

The Dow Jones Industrial Average dropped 195 points, or 0.8 percent, to 25,313. The Nasdaq composite, which has risen for eight days in a row, sank 37 points, or 0.5 percent, to 7,854.

TURKEY: The Turkish lira dropped again and is now down 40 percent this year against the dollar. The weakening lira has been pushing up the cost of goods for Turkish people and shaken international investors' confidence in the country.

Investors are worried about Turkish President Recep Tayyip Erdogan's unorthodox economic views. Erdogan says higher interest rates lead to higher inflation, the opposite of what standard economic theory says. As a result he's pushed Turkey's central bank to keep interest rates low, threatening its independence.

U.S. President Donald Trump said Friday he will authorize the government to double a tariff on steel and aluminum imported from Turkey. The U.S. sanctioned Turkey, a longtime ally, after it arrested an American pastor and put him on trial for espionage and terror-related charges.

FALLOUT: Analysts say Turkey's problems shouldn't have a major impact on the global financial system. Still, some European banks could be exposed to losses. Germany's Deutsche Bank dropped 5.4 percent to $11.73 and Banco Santander of Spain fell 3.8 percent to $5.17. British bank Barclays fell 2.8 percent to $9.69.

U.S. BANKS: Bond prices rose. The yield on the 10-year Treasury note fell to 2.87 percent from 2.93 percent. That helped send bank stocks lower. JPMorgan Chase slid 1.3 percent to $115.35 and Bank of America gave up 1.4 percent to $31.17. Citigroup retreated 2.7 percent to $70.06.

Big dividend stocks like utilities and household goods retailers held up better than the rest of the market. Walmart rose 1.1 percent to $90.01 and Evergy gained 0.8 percent to $57.50.

OVERSEAS: Germany's DAX fell 2 percent and the CAC 40 in France fell 1.6 percent. Britain's FTSE 100 lost 1 percent. The Nikkei 225 index in Japan lost 1.3 percent. Hong Kong's Hang Seng gave up 0.8 percent. In South Korea, the Kospi lost 0.9 percent.

CURRENCIES: Emerging market currencies fell and the dollar jumped. The ICE U.S. Dollar Index was already trading around annual highs and it rose another 0.9 percent, a large move.

The euro fell to $1.1389, its lowest in more than a year, from $1.1542. The dollar fell to 110.72 yen from 111.04 yen after a strong economic growth report form Japan.

LOSING GROUND: When the dollar gets stronger, it hurts U.S. companies that get a lot of revenue from overseas. That includes technology and industrial companies.

Microchip Technology tumbled 9.8 percent to $88.49 after its forecast weaker-than-expected sales in the current quarter. Chipmaker Texas Instruments lost 3.9 percent to $109.88 and Facebook fell 1 percent to $181.25.

Among industrials, Boeing lost 1.1 percent to $339.77 and 3M fell 1.3 percent to $202.74.

LITTLE LEADERS: Smaller, more U.S.-focused companies fared better than the rest of the market. Those companies are less reliant on exports and the stronger dollar makes their imports less costly.

The Russell 2000 index of smaller-company stocks rose 2 points, or 0.1 percent, to 1,693.

PRICES: The Labor Department said consumer prices climbed 2.9 percent in July compared with a year ago. The main cause was an increase in housing prices. That matched June's pace, which was the highest in six years.

ENERGY: Energy companies made small gains as oil prices rose. Benchmark U.S. crude oil rose 1.1 percent to $67.52 a barrel in New York and Brent crude, the standard for international oil prices, rose 1.1 percent to $72.83 a barrel in London.

OVER THE TOP: Online discount retailer Overstock.com surged 18.4 percent to $45.70 after it said private equity firm GSR Capital will make an investment in its blockchain business.

Overstock is one of the few major retailers that accepts payment in bitcoin, and its stock surged as bitcoin prices rose last year. However digital currency prices and the company's stock have both dropped in 2018.

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AP Markets Writer Marley Jay can be reached at http://twitter.com/MarleyJayAP His work can be found at https://apnews.com/search/marley%20jay

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