NEW YORK, May 30 (Reuters) - Mid- and small cap stocks fell sharply on Thursday as rising bond yields in Italy and a bank crisis in Spain fueled fears about Europe's debt crisis and led investors to dump riskier assets for the perceived safe-havens such as U.S. government debt.
Yields rose sharply at an Italian sale of five and 10-year debt, while investors fretted about Spain's plans to raise new funds. The troubling developments in credit markets comes as Greece faces a new election, which could determine if the country will leave the euro zone.
Yields on 10-year Treasury debt hit at least a 60-year low at 1.619 percent. Less than three months ago, when some analysts predicted the end of the 30-year bull run for Treasuries, the 10-year yield peaked near 2.40 percent.
"The U.S. economy, all things considered, is doing reasonably well," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. "The bigger story, the bigger motivator for where the economy is going is overseas right now."
The Russell 2000 small cap index fell 2 percent to 762, bringing it closer to a support level at around 750, which, if breached, could cause steeper losses in the index, analysts say.
The S&P MidCap 400 index fell 1.9 percent while the S&P SmallCap 600 index also lost 1.9 percent. In comparison, the benchmark S&P 500 dropped 1.4 percent.
In company news, Pep Boys Manny, Moe & Jack fell 19.9 percent to $8.89 after private equity firm Gores Group walked away from a $791 million deal to buy the auto parts retailer.
U.S. coal mining shares fell on Wednesday after Patriot Coal, which is seeking new financing, was downgraded by UBS and CRT Capital Group. Patriot Coal fell 8.4 percent to $2.38.
Golar LNG shares fell 3.3 percent to $34.05. The liquefied natural gas shipper declared a dividend above expectations even as it missed market expectations with its first-quarter profit, and said the market was picking up momentum.
Booz Allen Hamilton Holding rose 13.3 percent to $16.86. The consulting firm reported a stronger-than-expected quarterly profit on growth at its defense, civil and intelligence businesses.