Investors seek safety

European stocks fell and U.S. equities resumed a selloff as concern deepened over signs of financial stress in Portugal. Treasuries, the yen and gold gained as investors sought safety.

The Standard & Poor’s 500 Index (CME:SPU14) fell 0.9% at 9:41 a.m. in New York. The Stoxx Europe 600 Index lost 1.2%, led by a gauge of banks dropping to this year’s low. Portugal’s 10-year bond yield rose 16 basis points to 3.92% as financial bond risk increased in Europe for a fifth day. Treasury 10-year yields (CBOT:ZNU14) slid four basis points to 2.51% while the yen (CME:J6U14) advanced against all but one of its 16 major peers. Gold (COMEX:GCN14) climbed 1%. The Chicago Board Options Exchange Volatility Index jumped 9.9%.

Bonds of Europe’s most-indebted nations declined as speculation resurfaced that the euro (CME:E6U14) region remains vulnerable to shocks as it emerges from the sovereign debt crisis. The sell-off comes after minutes of the Federal Reserve latest meeting showed yesterday some policy makers were concerned investors may be growing too complacent. The value of global equities climbed to a record $66 trillion last week, data compiled by Bloomberg show.

“People will shoot first and ask questions later when news like this hits,” said Lawrence Creatura, a fund manager at Federated Investors Inc. in Rochester, New York. His firm manages about $363.8 billion. “The concern of an event like this is always determining whether it’s occurring in isolation or whether it’s the first domino. It’s a classic flight to safety across the equity, commodities and bond markets.”

While Portugal’s central bank said Banco Espirito Santo SA, the nation’s second-largest lender, is protected after its parent missed debt payments, Moody’s Investors Service downgraded a company in the group citing a lack of transparency and links to other companies.

European Yields

Banco Espirito Santo tumbled 17% before the Portuguese securities regulator said it stopped trading in the shares pending an announcement. Espirito Santo Financial Group SA, which owns 25% of the lender, fell 8.9% before the company suspended trading earlier in stocks and bonds, saying it’s “currently assessing the financial impact of its exposure” to Espirito Santo International, which has missed payments on short-term paper.

Portuguese bonds fell for a fourth day. The yield on 10- year Italian notes rose four basis points to 2.92% and Spain’s rate jumped four basis points to 2.80%. The Markit iTraxx Europe Senior Financial Index of credit-default swaps on 25 European banks and insurers rose two basis points to 71 basis points, the highest since June 4.

U.S. Selloff

“It’s all about Portugal and the fears rippling through Europe,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “Everyone’s going to be in a de-risking mentality today, which is certainly not good. It’s sell first and ask questions later, which is what you see going on.”

U.S. equities declines today after the S&P 500 rebounded 0.5% yesterday from a two-day selloff as optimism over corporate earnings and jobs growth outweighed Fed concern that investors may be growing complacent about risk.

The selloff this week came after the small-cap index had recovered nearly all its losses from a two-month slide to come within a point of an all-time high. Gauges of Internet and biotechnology companies also had climbed back from their lows for the year, retracing more than half of their earlier losses.

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