Global turmoil weighing on stocks, but U.S. prices up

A Wall Street sign is mounted near the A Wall Street sign is mounted near the flag-draped facade of the New York Stock Exchange. World stocks sank Friday, Aug. 8, 2014, as jitters over the crises in Iraq and Ukraine escalated, but Chinese stocks rose after surprisingly strong growth in exports. Photo Credit: AP / Richard Drew

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Fear is creeping into stock and bonds markets around the world against a backdrop of escalating global turmoil.

Prices in Europe and Asia slumped Friday on news of U.S. fighter jets dropping bombs in Iraq, the end of a three-day cease-fire in Gaza and escalating tensions in Ukraine. The drops capped broad losses for the week, including a 5 percent drop in Japan's major stock index and declines in Europe.

In recent days, money has been flowing from around the world into U.S. Treasurys, the perennial safe haven for spooked investors.

The question facing investors now, according to Wells Capital's chief strategist, Jim Paulsen: "Are geopolitical risks really going to have an economic impact?" Until recently most investors apparently didn't think so. Before late July, prices in major indexes had been rising in the face of widening conflicts around the world. Some experts warned that markets had grown dangerously complacent.

But then the West imposed increasingly crushing sanctions on Russia for supporting rebels in Ukraine, Israel's bloody war in Gaza dragged on and Sunni extremists made advances in northern Iraq.

Prices have been falling generally in the past month, even in the resilient U.S. stock market. On Friday, investors appeared to be snapping up share prices that had been beaten down in recent days. The Dow Jones industrial average was up 134 points, or 0.8 percent, to 16,502 as of 3:07 p.m. on Wall Street. Having drifted down in recent weeks, the blue chip index is still off nearly 4 percent from a record high on July 16.

As investors have sought safety, U.S. government bond prices have risen and yields, which move in the opposite direction, have plummeted. The yield on German government notes maturing in 10 years hit its lowest level ever Friday. Notes of the same maturity sold by the U.S. and the United Kingdom are yielding the least in about a year.

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Another sign of fear, the VIX, a gauge of expectation of future U.S. stock volatility, has climbed nearly 50 percent since early July.

In the United States on Friday, the Standard & Poor's 500 index rose 17 points, or 0.9 percent, to 1,926. The Nasdaq composite rose 31 points, or 0.7 percent, to 4,365.

In Europe, Germany's DAX fell 0.3 percent while the FTSE 100 index of British shares dropped 0.5 percent. Both indexes are down about 2 percent for the week, capping three weeks of losses.

France's CAC-40 was flat, but ended the week down 2 percent. That was its worst weekly loss in a year.

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