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Monday
Mar182013

Cyprus Crisis Pulls Down US Stocks

Hemera/Thinkstock(NEW YORK) -- U.S. markets began the week with a second straight day of losses after a controversial proposal to seize money from depositors in Cyprus as part of a bailout deal that fueled concerns about Europe's shared currency.

The Dow Jones Industrial Average lost 62.05 points to finish the session at 14,452.06.  The S&P 500 fell 8.60 points to 1,552.10. The Nasdaq lost 11.48 points, closing at 3,237.59.  Oil closed at just under 94 dollars a barrel.

Cyprus is a tiny country, accounting for only 0.2 percent of economic output of the 17 countries that use the euro currency. But countries that use the euro make up the world's second-largest economy, behind the U.S.

The "bail-in" plan, as it is being called, is imposing a tax on bank accounts, yanking money out of accounts before depositors can get their hands on it.

Arguably the most controversial part of the plan is that it does not respect bank deposit insurance.  People with balances lower than 100,000 euros – which are supposed to be insured by the government – may also lose some of their money.  Like the FDIC in the U.S., European governments are supposed to protect a portion of all bank deposits.

Cyprus' banks are expected to reopen Friday.  At that time there is a very real risk of a run on those banks.  People could pull their money to deposit it in banks that they think are more secure.

Investors are concerned that Cyprus could be the match that ignites a banking crisis in Italy and Spain, which could roil stock and bond markets in the U.S. and the world.  

Copyright 2013 ABC News Radio