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U.S. market has biggest drop in two years on Greek default fears

The U.S. stock market suffered its worst drop in two years Monday amid a global selloff after Greece closed its banks and imposed restrictions on cash withdrawals to try to prevent a deepening financial crisis from worsening amid faltering bailout talks with its international creditors. The Dow Jones industrial average fell 350 points, or 2.0%, to 17,597 for its biggest slide since June 2013. Indexes in Europe were hit even harder with Germany’s DAX index down 3.6% and France’s CAC 40 down 3.7%. In Asia, Tokyo’s Nikkei 225 fell 2.9% and China’s Shanghai composite lost another 3.3% to officially enter bear market territory — meaning a drop of 20% or more.2013-11-04T131020Z_8_CBRE99U0VX000_RTROPTP_3_MARKETS-STOCKS_original

The global slide came after Greece’s government ordered the country’s banks and stock market closed for a week to try to contain collapsing share prices. Yields on Greece’s 10-year government bonds moved past 14%, although the euro was up a little against the dollar at $1.12. Standard & Poor’s rating agency cut Greece’s credit rating further into junk status Monday and said there is now a 50% chance of Greece leaving the eurozone.

Over the weekend, Greek Prime Minister Alexis Tsipras said his country would hold a July 5 national referendum on whether to accept austerity measures demanded by the International Monetary Fund, European Central Bank and European Commission in return for releasing the final $8 billion of a $270 billion financial crisis aid package. However before that, on Tuesday, Athens needs to pay the IMF a $1.8 billion loan repayment or face the prospect of default, a scenario that could increase the possibility of Greece leaving the eurozone, a 19-member economic and currency bloc.

“With negotiations halted, the Greek situation has rapidly moved to the worst-case scenario and investors who jumped to the conclusion last week that a deal was done will be suffering significant losses,” said Alastair George, chief strategist at Edison Investment Research, a consultant. Sunday, the ECB froze emergency funding to Greece’s banks that lenders there have been using to meet short-term funding needs. The capital controls put in place Monday by Greece permit people to withdraw just $66 per day at ATMs, a limit that affects residents but not tourists. About 20% of Greece’s GDP is generated through tourism.