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Stocks stumble as European Union leaders gather in Brussels

A man protests Wednesday in front of the building in Brussels where EU leaders are discussing their economic crisis. Leaders are divided between a German-led camp that favors austerity measures and a group that favors spending to stimulate the economy.

Associated Press

A man protests Wednesday in front of the building in Brussels where EU leaders are discussing their economic crisis. Leaders are divided between a German-led camp that favors austerity measures and a group that favors spending to stimulate the economy.

PARIS — Stocks from Asia to New York fell on Wednesday, and the euro tumbled to nearly a two-year low as European Union leaders began converging on Brussels to discuss the intensifying Greek crisis amid talk that the struggling country could soon leave the eurozone.

Although Wall Street recovered its losses late in the day, fear in the European markets intensified, leading investors to move euros out of the struggling countries on the zone's periphery and into economies at the core such as Germany and France.

In a debt auction Wednesday, Germany sold almost 4.6 billion euros ($5.8 billion) of two-year Schatz notes priced to yield 0.07 percent, the lowest ever. At that yield, investors are essentially handing their euros to Germany for safekeeping, expecting nothing in return.

"There's a flight to safety inside the eurozone," said Steven Saywell, head of currency strategy for Europe at BNP Paribas in London.

Beyond that, he added, investors are also buying bonds amid expectations that weakening economic data will soon lead the European Central Bank to cut interest rates again.

Leaders of all 27 EU member nations were present at the meeting late Wednesday, where Chancellor Angela Merkel of Germany and proponents of the austerity-first approach to addressing the crisis will hear proposals from new French President Francois Hollande to make economic growth a bigger factor in the equation. He has suggested that euro member nations pool their resources to make funds available for initiatives ended to promote growth.

A Greek exit from the eurozone has become a real possibility, one to be discussed openly. Reuters reported, without identifying its sources, that eurozone members have been told to begin preparing for such an eventuality. The German government declined to comment.

The Euro Stoxx 50 index, a barometer of eurozone blue-chip stocks, closed off 2.7 percent, while the FTSE 100 index in London fell 2.5 percent.

Stocks fell broadly on Wall Street, with the S&P 500 down 1.3 percent in afternoon trading in New York. But a turnaround in sentiment in the last half-hour of trading restored almost all of the losses.

Despite the market turmoil stemming from the euro crisis and troubling signs of economic slowing in China and the United States, the MSCI World index, a proxy for the global equity market, was still up about 1.5 percent this year.

The dollar was higher against major European currencies. The euro fell to $1.2578 from $1.2684 late Tuesday in New York, having fallen to $1.2570, its lowest since July 2010, according to Bloomberg News.

Stocks stumble as European Union leaders gather in Brussels 05/23/12 [Last modified: Wednesday, May 23, 2012 10:00pm]
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