NEW YORK (AP) – Fear about Europe's financial stability caused traders to retreat from most investments seen as risky Wednesday, punishing U.S. stocks and pushing the yield on the benchmark 10-year Treasury note to a record low.  Major U.S. stock indexes fell more than a percentage point in the first half-hour of trading and stayed more than 1% lower as trading continued throughout the day. Traders dumped European stocks and government bonds and the euro fell to a nearly two-year low against the dollar. Borrowing rates for European governments rose sharply, even for relatively stable nations such as France.  Rising demand for low-risk, easily tradable securities pushed the yield on the 10-year Treasury note to 1.64%, the lowest on record, from 1.74% late Tuesday. German government bond yields also plunged.  The Dow Jones industrial average has had a miserable May. It's down 5.9% for the month, putting it on track for its first losing month since September.  Concerns about Europe seemed to lurk around every corner: Europe's executive body said consumer confidence fell sharply last month. Spaniards withdrew money from their banks, spreading fear about that nation's ability to go on without bailouts. Spain's main stock index fell 2%.  Dow Jones industrial average, five trading days  If Europe's financial crisis plunges it into a deep recession, global economic growth will likely falter, reducing demand for commodities and machines that power growth. Fearing that outcome, traders pushed heavy equipment maker Caterpillar and aluminum company Alcoa to the biggest declines among the 30 companies that make up the Dow.  Metals, food and energy commodities all fell sharply. Crude oil lost more than $2 to $88 a barrel, a big move. Crude has been falling steadily since the beginning of May, when it traded as high as $106 a barrel.  Events overseas have begun to drag on the U.S. banking sector. Shares of JPMorgan, (JPM) Bank of America (BAC) and Citigroup (C) were all trading lower.  Shares of Research in Motion (RIMM) tumbled 7% after the BlackBerry maker issued a dire warning about its business Tuesday, saying it is losing money for the second consecutive quarter and will lay off a significant number of its workers.  Overseas, the European Union's executive branch said Wednesday that economic confidence across the continent fell sharply this month, hitting the lowest level in about 2½ years.  The economic sentiment indicator for the 17 countries that use the euro fell by 2.3 points in May to 90.6, according to the European Commission. That was worse than what was expected.  U.S. corporations have reported deteriorating conditions in Europe. On Wednesday, HanesBrands said it was cutting all exposure to the continent by selling its division there.  The Imagewear division, which includes the European division, accounted for 8% of the company's sales, and HanesBrands anticipates restructuring charges of up to $85 million to $95 million in the second quarter.  An opinion poll in Greece showing that the radical left Syriza party, which opposes the loan-dependent country's bailout commitments, is in the lead ahead of crucial national elections on June 17 also weighed heavily on sentiment across markets.  Though Greece is the epicenter of the debt crisis, Spain has been a growing source of worry over recent weeks. Its banking system is under the microscope, especially after Bankia, the country's fourth-largest lender, last week announced it needed €19 billion ($23.8 billion) in state aid.  "The political and economic problems facing Greece and market speculation about a Greek exit from monetary union are now starting to take second order priority for the markets," said Neil MacKinnon, global macro strategist at VTB Capital.  Investors are worried that Bankia's woes might be replicated across Spain's banking sector, which has suffered badly from the collapse of the construction sector. An economic recession and unemployment at almost 25% are fueling concern that the country will become the fourth euro country to be bailed out after Greece, Ireland and Portugal.  With that backdrop, the EU's executive office on Wednesday called on the eurozone to create a "banking union" that can centrally oversee and — if needed — bail out the sector, which has become a weak link in the continent's financial system.  Bank failures have already overwhelmed the public finances of Ireland, forcing it to take an international bailout, and some fear Spain could be next. The European Commission also recommended that Spain be given an extra year to meet its deficit targets.  The problem for the eurozone is that Spain's economy alone is double the size of the three countries already bailed-out, and investors are skeptical whether a rescue operation can be mounted.  The unease hit stocks hard, particularly in Europe, and the selling was aggravated after the VPRC poll for Epikaira magazine in Greece gave Syriza 30% of the vote, followed by conservative pro-bailout New Democracy at 26.5%.  While Syriza would lack enough seats to govern alone, it could form a coalition with the expected backing of two more anti-austerity parties. If Greece reneges on its international bailout commitments, it could see the vital loans dry up that may force it to leave the euro.  In Europe, the FTSE 100 index of leading British shares was down 1.7% at 5,301 while Germany's DAX fell 1.5% to 6,304. The CAC-40 in France slid 1.8% to 3,029.  Spain's stock market has been one of the worst-performing in the world this year — down another 1.6% Wednesday — and the country's cost of borrowing has ratcheted higher to alarming levels. At 6.55%, another 0.13 percentage point higher Wednesday, the yield on the benchmark 10-year bond is near levels that eventually forced the other bailouts.  "Spain could prove beyond Germany and other northern countries' capacity to rescue, and its collapse would spell the end for the euro," said Peter Morici, a professor at the University of Maryland.  The euro fell another 0.6% to $1.2411, a little up from its near two-year low of $1.2405 hit earlier.  Earlier, Asian markets likewise fell on worries over Spain, though a report that China has no plans for a major economic stimulus weighed heavy, too.  Japan's Nikkei 225 index fell 0.3% to close at 8,63319 as Europe's troubles sent the yen higher against the euro. That hurts Japanese exporters by making their goods more expensive.  Hong Kong's Hang Seng tumbled 1.9% to 18,690.22 and South Korea's Kospi was down 0.3% to 1,844.86.
The European Union's stability is more tenuous and Spain's cost to borrow money hit the highest level since the nation joined the EU.