World stocks tumble as Britain votes for EU exit

Fri Jun 24, 2016 4:46pm EDT
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By Herbert Lash and Edward Krudy

NEW YORK (Reuters) - Global stock markets lost about $2 trillion in value on Friday after Britain voted to leave the European Union, while sterling suffered a record one-day plunge to a 31-year low and money poured into safe-haven gold and government bonds.

The blow to investor confidence and the uncertainty the vote sparked could keep the U.S. Federal Reserve from raising interest rates as planned this year, and even spark a new round of emergency policy easing from major central banks.

The move blindsided investors, who had expected Britain to vote to stay in the EU, and sparked sharp repricing across asset classes. Mainland European equity markets took the brunt of selling as investors feared the vote could destabilize the 28-member bloc by prompting more referendums.

The traditional safe-harbor assets of top-rated government debt, the Japanese yen and gold all jumped. Spot gold rose nearly 4 percent and the yield on the benchmark 10-year U.S. Treasury note fell to a low of 1.406 percent, last seen in 2012, though it climbed higher in afternoon trading.

Stocks tumbled in Europe. Frankfurt .GDAXI and Paris .FCHI each fell 7 percent to 8 percent. Italian .FTMIB and Spanish .IBEX markets posted their sharpest one-day drops ever, falling more than 12 percent, led by a dive in European bank stocks . Italy's Unicredit (CRDI.MI: Quote) fell 24 percent while Spain's Banco Santander (SAN.MC: Quote) fell 20 percent.

London's FTSE .FTSE dropped 3.2 percent, with some investors speculating that the plunge in sterling could benefit Britain's economy. The index closed up 2 percent for the week for its best weekly gain in over two months.

"I think markets were really caught off guard today, that's why you are seeing a huge risk-off trade," said Jeff Kravetz, a strategist at the Private Client Reserve at U.S. Bank. "In the end, when markets start to settle down, I think they are going to realize that this is not the end of the world."

Still, Britain's big banks took a $100 billion battering, with Lloyds (LLOY.L: Quote), Barclays (BARC.L: Quote) and RBS (RBS.L: Quote) plunging as much as 30 percent, although they cut those losses nearly in half later in the day.   Continued...

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 24, 2016.  REUTERS/Lucas Jackson