NEW YORK World shares and the euro fell on Wednesday as traders turned their focus to the festering fiscal problems in the United States and Europe after the re-election of President Barack Obama signaled no dramatic shift in U.S. economic policies.
Jittery investors scrambled for less-risky assets, with benchmark U.S. Treasuries poised for their best one-day move since May.
Concerns persisted whether Obama could reach a timely deal with Republican lawmakers to avert the "fiscal cliff" -- the $600 billion in automatic tax hikes and spending cuts set to kick in on January 1. Economists warned such a move would tip the world's biggest economy into a recession.
"Unfortunately, the honeymoon doesn't last very long in real time and we knew that regardless of the outcome of the election, our focus would immediately be shifted to the 'fiscal cliff,' which is going to be difficult in and of itself," said Art Hogan, managing director of Lazard Capital Markets in New York.
Traders also monitored the developments in Greece, where parliament votes late in the day on an austerity package needed to secure a fresh injection of EU/IMF aid and avert bankruptcy. There will be a follow-up vote on Sun day on an austerity budget for 2013.
Greece's solvency is seen as vital in the support of the euro and the region's economy, which has deteriorated due to slowing global demand and a battered banking system.
European Central Bank President Draghi said the ECB expects the euro zone economy to remain weak "in the near term" and euro zone governments must press ahead with efforts to forge closer financial, fiscal, economic and political union.
"A lot depends on this vote today in Greece, so I think it is a little bit of wait-and-see," said Mark Priest, Head of Index & Equity Market Making at ETX Capital in London.
In early trading, the Dow Jones industrial average was down 240.30 points, or 1.81 percent, at 13,005.38. The Standard & Poor's 500 Index was down 26.57 points, or 1.86 percent, at 1,401.82. The Nasdaq Composite Index was down 55.58 points, or 1.85 percent, at 2,956.36.
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 JRCC.O tumbled 20 percent to $3.77 a share.
The FTSE Eurofirst 300 index of top European shares slid 1 percent to 1,103.62.
Bucking the market were French banking stocks. They were helped by BNP Paribas' (BNPP.PA) forecast-beating quarterly earnings, which sent its shares 2 percent 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 cut and reinforced expectations the Federal Reserve's ultra-loose monetary policy will continue.
The MSCI world equity index was briefly 0.4 percent higher before falling 1.1 percent to 328.12.
"The fact the election is over is obviously positive for the market. Markets don't like uncertainty and there was always the worry that it was going to drag on," ETX's Priest said.
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, gold and U.S. and German government bonds.
The dollar recovered from early losses, resuming its rally during this week's tense run-up to the U.S. election. It was up 0.2 percent against a basket of currencies, touching a two-month high earlier.
The euro on the other hand fell 0.4 percent to $1.2755, retreating from a session high of $1.2876.
Gold rose for a third straight session. It was up 0.5 percent to a one-week high of $1,724.21 an ounce.
In the bond market, the yield on 10-year Treasury notes was 1.634 percent, a 12-basis point decline from late on Tu esday, on track for its biggest single-day drop since May 30, according to Reuters data.
German Bund futures climbed 71 basis points, or 0.5 percent, at 142.80.
Worries about weaker energy demand caused a sell-off in the oil market after it rallied on Tuesday. Brent crude oil fell $2.05 to $109.02 a barrel and U.S. oil futures fell $2.56 to $86.15.
(Additional reporting by Chuck Mikolajczak in New York; Marc Jones, Richard Hubbard, in London; Editing by Dan Grebler)
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