US stock futures sink on debt, recession jitters

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U.S. stock futures fell early Friday as economic jitters and uncertainty about Europe's finances fuel another day of selling around the world.

European banking shares fell near two-and-a-half-year lows, dragged down by rumors about banks' potential losses on bonds issued by heavily-indebted governments. Markets in Britain, Germany and France fell 2 percent or more. Earlier, Asian shares took a beating, with major indexes in China and Japan losing more than 2.5 percent.

Thursday marked a return to the volatile trading that brought record-setting market swings last week. A raft of bad economic news overseas and in the U.S. spooked investors. Economists with Morgan Stanley said that the U.S. and Europe are "dangerously close to recession," adding, "it won't take much in the form of additional shocks to tip the balance."

Investors rushed into to safe investments, pushing U.S. Treasury yields to their lowest on record. As the selling continued overseas on Friday, gold rose to near $1,900 an ounce. Oil prices fell as traders feared a global slowdown that would cut demand for crude.

About an hour before the market opens, Dow Jones industrial average futures fell 110, or 1 percent, to 10,907. Standard & Poor's 500 futures lost 11, or 0.9 percent, to 1,133. Nasdaq 100 futures skidded 12, or 0.6 percent, to 2,070.

Futures trading does not always predict how the market will behave when it opens, however.

If shares close lower on Friday, it will be the first time in more than two weeks that the Dow has posted two straight days of losses. It fell on Aug. 1 and Aug. 2.

Much of the recent volatility in U.S. markets has been driven by events overseas. Exports from Japan fell for a fifth straight month, its government said Thursday. Reports that the French and German economies barely grew in recent months have stoked fears of a global economic slowdown.

Traders and bankers are growing increasingly alarmed about the spiraling debt crisis in Europe. The agreement underlying Greece's financial rescue might be splintering. Europe's biggest economies would struggle to afford possible bailouts for other neighbors, such as Spain and Italy.

Banks in Europe look increasingly fragile. Many are exposed to massive losses on bonds issued by nations such as Greece and Portugal. No one knows how much bad debt each bank holds. Some are relying on emergency infusions from the European Central Bank to keep the system afloat.

Bad economic news in the U.S. added to those fears on Thursday. Before markets opened, the government said that more people joined the unemployment line last week. Consumer inflation in July was the most since march, as higher fuel and food costs continued to squeeze household budgets. Home sales continued to slide. And a Federal Reserve survey showed that manufacturing in the Philadelphia region had slowed sharply, a troubling sign for a sector that has helped power the economic recovery.

The Dow closed down 420 points, or 3.7 percent, at 10,991. The Standard & Poor's 500 index fell 53, or 4.5 percent, to 1,141. The Nasdaq composite fell 131, or 5.2 percent, to 2,380.

The Dow is down 13.6 percent since stocks began falling on July 21, draining billions from American's retirement savings and other investment accounts.

A string of market drops in late July gave way to some of the market's wildest trading days last week. The market's plunge on Thursday marked a return to that volatile trading.