Europe - Greece shocks markets with referendum on austerity

Worries that a planned Greek referendum could scuttle a plan to resolve Europe's debt crisis rattled markets Tuesday morning. Stocks indexes plunged in the U.S. and Europe.

The dollar and U.S. government bond prices rose as traders moved into assets considered safe.

The Greek government shocked financial markets with news that it would put its cost-cutting plan to a popular vote. A vote against the plan could lead the country to drop the European currency and default on its debt.

The Dow Jones industrial average dropped 210 points, or 1.8 percent, to 11,744 as of 10 a.m.

The S&P 500 fell 25, or 2 percent, to 1,228. The Nasdaq composite fell 55, or 2.1 percent, to 2,628.

Banks fell hard as investors worried about how exposed U.S. banks are to European debt. Both Citigroup and Morgan Stanley fell more than 7 percent. JPMorgan Chase & Co. fell 5.4 percent, the largest drop among the 30 stocks in the Dow.

European markets fell ever more. Germany's DAX index fell 4.7 percent and France's CAC-40 fell 4.8 percent. French banks have large holdings of Greek government bonds and would be exposed to severe losses if Greece goes through a disorderly default on its debt.

On Monday the U.S. securities firm MF Global Holdings Ltd. became the first big casualty of the European debt crisis on Wall Street. The company, led by former New Jersey Governor Jon Corzine, filed for bankruptcy after concerns about the company's holdings of European government bonds caused its business partners to pull back from the firm and ratings agencies to downgrade its debt.

Credit Suisse Group AG fell 9 percent in early trading, after Switzerland's second-largest bank reported profits that fell short of expectations. The bank also announced plans to cut 1,500 people from its payroll.

The yield on the 10-year Treasury note sank to 1.99 percent from 2.16 percent late Monday, a steep drop. Yields fall when bond prices rise. The dollar rose to $1.36 for every euro.

The prime minister of Greece called for the referendum late Monday and the news sent U.S. stocks spiraling lower. The S&P 500 index fell 2.5 percent, which put the broad-market index below where it started the year.

MATTHEW CRAFT - AP Business Writer

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