Stocks are tanking on Fiscal Cliff worries after U.S. vote

NEW YORK — World shares and the euro fell on Wednesday as investors worried that the deep fiscal challenge facing President Barack Obama after his re-election could lead to a new recession.

Fresh concerns about Europe’s debt crisis added to the jitters among investors, who scrambled for safer assets. U.S. Treasury yields were set for their biggest one-day fall since May.

Worry persisted whether Obama could reach a timely deal with Republican lawmakers in the lame-duck session of a divided Congress to avert the “fiscal cliff” — the USUS$600 billion in automatic tax hikes and spending cuts set to start kicking in on Jan. 1.

“The minute such a deal is cut, we’ll boom. If one is not cut – and soon – we may well double-dip into recession,” said Robert L. Reynolds, president and chief executive of Putnam Investments in Boston.

“This upcoming lame-duck session may just be the most consequential in our lifetimes. The stakes are high and the time is short,” he said in a statement.

Traders were also worried about a vote in Greece’s parliament later on Wednesday on an austerity package needed to secure a fresh injection of international aid and avert bankruptcy, which would rock the eurozone and world markets.

European Central Bank President Mario Draghi said the ECB expects the eurozone economy to remain weak “in the near term” and that the problems were spreading to Germany.

“A lot depends on this vote today in Greece,” said Mark Priest, head of Index & Equity Market Making at ETX Capital in London.

The drop in U.S. equities was similar to the one on the day after Obama won his first White House term in 2008.

In midday trading, the Dow Jones industrial average was down 301.23 points, or 2.27%, at 12,944.45. The Standard & Poor’s 500 Index was down 31.47 points, or 2.20%, at 1,396.92. The Nasdaq Composite Index was down 68.35 points, or 2.27%, at 2,943.58.

Energy shares succumbed to intense selling pressure, as companies in the sector will likely see more regulation in Obama’s second term, with less access to federal lands and water even as the administration promotes energy independence. James River Coal tumbled 24% to US$3.56 a share.

The FTSE Eurofirst 300 index of top European shares slid 1.2% to 1,101.50.

Bucking the market were French banking stocks. They were helped by BNP Paribas’ forecast-beating quarterly earnings, which sent its shares 2% higher to 39.93 euros.

European and Asian stock markets rose initially on relief buying when U.S. election results for the White House and Congress were clear and reinforced expectations the Federal Reserve’s ultra-loose monetary policy will continue.

The MSCI world equity index was briefly 0.4% higher before falling 1.4% to 327.10.

As worries over the U.S. fiscal cliff and Greece’s austerity votes moved to the forefront, investors flocked to the safety of low-risk assets, including the greenback and U.S. and German government bonds.