Late rally erases steep losses on Wall Street

Trader Richard New­man, left, works on the floor of the New York Stock Exchange. Wall Street headed for another day of losses, Wednes­day May 23, 2012 with Dow Jones indus­trial futures down 0.5 per­cent to 12,410 and S&P 500 futures 0.6 per­cent lower at 1,306.50. (AP Photo/Richard Drew)

MATTHEW CRAFT, PALLAVI GOGOI

AP Busi­ness Writers

NEW YORK — A big final-hour come­back pulled the Dow Jones indus­trial aver­age nearly back to where it started Wednesday.

The Dow was down as much as 191 points ear­lier as the threat of a finan­cial cri­sis spread­ing from Europe shook mar­kets. The euro dropped to a nearly two-year low against the dol­lar, and oil prices sank to their low­est this year.

A late surge of buy­ing erased nearly all of the Dow’s deficit, leav­ing it down just 6.66 points at 12,496.15 by the end of the day. Other indexes ended slightly higher.

In the last hour of trad­ing, news crossed that the lead­ers of France and Italy favored using region-wide bonds to sup­port Europe’s econ­omy. That gave traders hope that a sum­mit of Euro­pean lead­ers might pro­duce con­crete steps to tackle the eco­nomic morass there. The Orga­ni­za­tion for Eco­nomic Coop­er­a­tion and Devel­op­ment warned Tues­day that the 17 coun­tries that use the euro risk falling into a “severe recession.”

Ana­lysts and investors have turned increas­ingly skep­ti­cal this month that Euro­pean lead­ers will pre­vent Greece from drop­ping the euro or agree on ways to jump-start the region’s econ­omy. The Dow has lost 5 per­cent this month, nearly wip­ing away its gains for the year. It has risen only three days in May.

Plenty of good ideas to but­tress Europe’s finan­cial sys­tem have been floated in recent weeks, said Paul Zem­sky, global head of asset allo­ca­tion at ING Invest­ment Man­age­ment. Eurobonds could be sold by coun­tries in the cur­rency union to raise money for bailouts and banks. Some have pro­posed insur­ing bank deposits across coun­tries that use the euro, a pro­gram mod­eled on the U.S. Fed­eral Deposit Insur­ance Corp.

“There are all these great ideas,” Zem­sky said. “But there’s noth­ing yet. There’s a lot of talk and no fol­low through.”

Bench­mark stock indexes dropped more than 2 per­cent in Ger­many and France and 3 per­cent in Spain and Italy.

The euro con­tin­ued to fall against the dol­lar, reach­ing $1.25, the low­est since July 2010. Con­cerns about the sta­bil­ity of the Euro­pean cur­rency union if Greece leaves have knocked 5 per­cent off the euro this month. Yields on Ger­man gov­ern­ment bunds fell as money shifted into low-risk investments.

If Greece exits, it could spread havoc through­out the global finan­cial sys­tem. Bond traders could dump the bonds of Spain and Italy, send­ing their bor­row­ing costs even higher. Banks in those coun­tries could also be crip­pled if peo­ple start to yank money out of them, as has begun to hap­pen in Greece.

“There’s just a tremen­dous amount of ‘what ifs’,” Zem­sky said. “If Greece leaves, I know equi­ties are going to be a lot lower than they are today. It’s not even close to being priced in yet.”

Face­book rebounded 3 per­cent to $32 after get­ting pounded for two days fol­low­ing an ini­tial pub­lic offer­ing that was plagued with tech­ni­cal prob­lems and has drawn scrutiny from reg­u­la­tors. The stock is still far below its ini­tial price of $38.

The Stan­dard & Poor’s 500 index rose 2.23 points to 1,318.86. The Nas­daq rose 11.04 points to 2,850.12.

Bench­mark crude lost $1.95 to $89.90 in New York trad­ing. Oil has plunged 15 per­cent in May as investors pre­dict that the Euro­pean econ­omy will con­tinue to slow.

The dol­lar rose and yields on U.S. gov­ern­ment debt fell as traders shifted money into the pro­tec­tion of Trea­surys. The yield on the 10-year note sank to 1.73 per­cent, close to a record low, from 1.77 per­cent late Tuesday.

The dol­lar and Trea­surys often trade in tan­dem when anx­i­ety hits mar­kets. Traders from around the world sell for­eign assets and then need to buy dol­lars before buy­ing dollar-denominated U.S. Treasurys.

Europe’s strug­gles come at a time when Asia is also slow­ing. China’s eco­nomic growth fell to a nearly three-year low of 8.1 per­cent in the first quar­ter and fac­tory out­put in April grew at its slow­est pace since the 2008 cri­sis, rais­ing the threat of job losses and pos­si­ble polit­i­cal tensions.

A poor earn­ings report from Dell helped tug down other tech stocks, includ­ing Intel and Microsoft. Dell reported dis­ap­point­ing results after the mar­ket closed Tues­day and pre­dicted weak sales for its sec­ond quar­ter. Dell dropped 17 percent.

Other stocks mak­ing big moves included:

— Google gained 1 per­cent fol­low­ing news that a fed­eral jury ruled against Ora­cle in its patent-dispute case against the Inter­net search giant.

— Ford rose 2 per­cent, a day after the com­pany won back its blue oval logo, fac­to­ries and other assets that were pledged as col­lat­eral for a mas­sive loan taken out last decade.

— Guess rose 6 per­cent after its first-quarter results beat Wall Street’s expec­ta­tions, and an ana­lyst rec­om­mended that investors buy the stock.

Posted by AP News on May 23 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.