Nov. 9 (Bloomberg) -- US stocks sank after a report that German lawmakers want to make it possible for European nations to stop using the region’s shared currency as a surge in Italian bond yields intensified the credit crisis. The Dow fell 389 points - more than 3 percent - and the euro has slid to a one-month low.

“It’s just like a scary movie as it never ends,” Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “The overarching problem is that most of the economies in Europe can’t sustain the size of their governments. We’re going to have this headache for a long time to come.”


Today’s equity slump erased the month-to-date gain in the S&P 500. Stocks snapped a five-month losing streak in October on optimism European leaders were taking steps to solve region’s debt crisis. Benchmark gauges rose yesterday as Prime Minister Silvio Berlusconi’s offer to resign boosted optimism Italy would appoint a new leader who can tame the crisis.

“The Greek flu is hitting Italy,” James McDonald, chief investment strategist at Northern Trust Corp. in Chicago, which manages $643 billion, said in a telephone interview.

After Berlusconi’s resignation offer, the market wants to know “who’s going to be the new leadership?” McDonald said. “Until they know the new leadership’s willingness to implement reforms, they are going to require higher compensation through higher yields on Italian bonds. The risk is that this feeds on itself.”

German Chancellor Merkel’s Christian Democratic Union party wants to make it possible for European Union members to exit the euro area, the newspaper Handelsblatt reported in a preview of an article to be published tomorrow, citing unnamed participants in the discussion. Greek President Karolos Papoulias will hold a meeting of political party leaders tomorrow at 10 a.m. to discuss the formation of a national unity government, an official from the president’s office told reporters in Athens today.


The S&P 500 slid 3.7 percent to 1,229, after rising 1.8 percent over the previous two days. The Dow Jones Industrial Average lost 389 points, or 3.2 percent, to 11,781. The 10-year Italian note yield topped 7 percent for the first time in the euro era.

‘Bear Mode’

The S&P 500 may halt its biggest gain in 20 years, according to two indicators studied by technical analysts at UBS AG. October’s 11 percent rally, which was the biggest monthly advance since 1991, failed to leave the S&P 500 above its 200- day average, limiting the potential for a rally, the Zurich- based analysts wrote in a report yesterday.

The team also said their model for moving average convergence-divergence, or MACD, is heading into “bear mode.”

“We see the risk of more near-term weakness into next week,” Marc Muller and Michael Riesner wrote in the report. “Given the high volatility, we would see a pullback into next week still as a trading opportunity for aggressive traders, whereas, on the upside, we wouldn’t chase the market.”