Worries over Italy, China drag down stocks

Stock in the United States dropped Tuesday amid concerns that growing political uncertainty in Italy and simmering tensions over Chinese trade could weigh on global economic growth.

The Standard & Poor’s 500stock index fell 1.2 percent, marking its third straight decline.

Financial shares were among the worst performers as developments in the European markets seemed to reawaken fears of a debt crisis among investors.

Italy — Europe’s fourth-largest economy and a founding member of the eurozone — has not had a new government since it held elections in March. But in the past week, the country’s politics took on a new level of unpredictability. A populist coalition that had been set to form a government nominated a skeptic of the European Union to be the economy minister, but the proposal was vetoed by Italy’s president, who subsequently named a technocrat to temporarily take charge instead.

Amid that uncertainty — which has left open the prospect of early elections and the formation of another populist alliance — investors have suddenly shifted away from riskier investments like stocks and commodities and taken refuge in the relative safety of German and U.S. government bonds, the U.S. dollar and the Japanese yen.

Italy’s bench mark stock index fell nearly 2.7 percent, and investors sold off government bonds, sending prices down and yields up.

The euro fell to its weakest value against the dollar in nearly a year, and prices for government bonds issued by other heavily indebted European countries like Spain and Portugal also tumbled Tuesday, pushing up their yields as well.

The so-called spread between yields on debt from such countries and debt from Germany — Europe’s biggest economy, which is seen as having the region’s safest government bonds — widened sharply.

The uncertainty in Italy reverberated across the continent on Tuesday.

In the United States, the yield on the 10-year Treasury note also fell below 2.8 percent as investors flocked to the safety of U.S. sovereign debt. Yields on those notes had topped 3 percent in recent weeks amid optimism about U.S. economic growth and expectations of ongoing rate increases from the Federal Reserve.

Industrial stocks also dragged on markets in the United States, as trade tensions with China continue to create ongoing uncertainties for manufacturers.

The Trump administration said on Tuesday that it would go forward with punitive trade-related measures on China in the next month, including levying a tariff of 25 percent on $50 billion of goods imported from China.