European fears have raised their head again and wiped more than $25 billion from the market as the ASX plummeted today. The benchmark S&P ASX 200 index (Index: ^AXJO) (ASX: XJO) lost 2%, while the broader All Ordinaries also fell 2%.
European finance ministers announced a €10 billion (US$13.6 billion) bailout of Cyprus, and imposed a tax on bank deposits over the weekend. The markets fear that this bailout plan has been imposed on deposit-holders, and could become the template should other countries be forced down the bailout route.
Scenes of Cypriots lining up to get their cash out of banks also raised the spectre of similar scenes occurring in Italy, Spain and Greece. All three countries are struggling economically, and markets fear the turmoil could spread. Safe haven investments were in vogue with the spot gold price rising above US$1,600 an ounce for the first time in more than two weeks and the Japanese Yen soaring.
On the local market, the banks were hit hard, while Woolworths Limited (ASX: WOW) lost more than 3%, closely followed by Westpac Banking Corporation (ASX: WBC), National Australia Bank (ASX: NAB) and miner Rio Tinto Limited (ASX: RIO).
Amongst the sectors, information technology was down 3%, consumer staples 2.9% and materials lost 2.2%, with only the gold sector posting a positive gain.
Some analysts and commentators have speculated that the market was due for a pull-back after rising close to 10% in less than three months, since the start of the year. The news out of Cyprus may have been the catalyst, and serves to remind investors that the globally economy is not out of the woods just yet.
We could yet see more volatility in the weeks ahead, which could be good news for Foolish investors looking to get into stocks thrown out with the bath water.
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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.