U.S. stock futures drop on Greek referendum
Greece will hold a referendum on latest bailout deal agreed with EU

By William L. Watts, MarketWatch

FRANKFURT (MarketWatch) — U.S. stock futures posted heavy losses Tuesday after Greece’s surprise decision to call a referendum on its bailout package stirred new default fears.

Futures on the Dow Jones Industrial Average fell 119 points to 11,778 and those on the Standard & Poor’s 500 index dropped 18.80 points to 1,230.50, while Nasdaq 100 futures declined 33.25 points to 2,322.75.

Greek Prime Minister George Papandreou late Monday unexpectedly called for a referendum on the latest bailout plan in the face of growing public anger over further austerity measures and a deepening recession.

“The latest brinkmanship creates new uncertainty in the eyes of markets, which could be concerned that, should the outcome of the referendum be negative, then either Greece would have to restructure its debt much more aggressively than the 50% currently envisaged ... or it could even pave the way for an eventual exit from the euro area,” wrote economists at Barclays Capital.

The move comes after European leaders last week announced a three-pronged plan to cut Greece’s debt load by writing down 50% of the value of government bonds held by banks and other private investors, recapitalizing European banks and boosting the firepower of the euro-zone bailout fund.

The Barclays economists said the surprise move by Papandreou appears to be a bid to shore up support for further austerity and economic liberalization efforts as the government has seen its popularity wane in the wake of two years of austerity measures and recession. They expect the government to win the referendum.

European equities saw heavy selling, with financial shares under pressure. Greece’s ASE Composite tumbled 5.9%.

The latest European turmoil is likely to continue overshadowing earnings results, which have continued to beat expectations in the third quarter.

Ahead of the opening bell, agricultural commodities and processing firm Archer Daniels Midland and drug maker Pfizer Inc. are among the firms expected to report results.

The Dow Jones Industrial Average dropped 276.10 points Monday to close at 11,955.01, but still managed a monthly gain of 9.5% in October — the third largest in its 115-year history.

The S&P 500 lost 31.79 points to close at 1,253.50, while the Nasdaq Composite fell 52.74 points to 2,684.41.