US stocks fall as Europe doubts bubble to surface

Spe­cial­ists Patrick King, left, and Christo­pher Carella work on the floor of the New York Stock Exchange Tues­day. Stocks appear to be headed to open lower with Dow Jones indus­trial futures down 0.3 per­cent and S&P 500 futures down 0.5 per­cent. (AP Photo/Richard Drew)

DANIEL WAGNER

AP Busi­ness Writer

Fear of Euro­pean debt is once again play­ing havoc with Wall Street.

Stocks pitched down Wednes­day in the United States as bor­row­ing rates climbed for Spain and Italy, a sign that investors are los­ing con­fi­dence in those coun­tries’ finances.

Spain’s 10-year bor­row­ing rate leapt to 6.06 per­cent from 5.70 per­cent early Tues­day. Many fear that Spain, stran­gled by high unem­ploy­ment and a real estate col­lapse, could be the next nation to require finan­cial rescue.

The Dow Jones indus­trial aver­age was down as much as 184 points before recov­er­ing about half of the loss. Still, the aver­age has fallen for six con­sec­u­tive days, its longest los­ing streak since last summer.

The Dow soared 2,624 points, or 25 per­cent, from Oct. 3 through May 1 as Euro­pean lead­ers appeared to get a han­dle on the debt cri­sis. Last fall, nations that use the euro agreed to enforce bud­get dis­ci­pline across the region.

Since May 1, when the Dow closed at a four-year high, wor­ries about Europe have resur­faced. In elec­tions on Sun­day, Greek and French vot­ers ousted lead­ers who had imposed tough spend­ing cuts to soothe investors.

In the six los­ing days that ended Wednes­day, the Dow gave back 444 points — one-sixth of the points it gained dur­ing its eight-month rally. The Dow closed down 97.03 points, or 0.8 per­cent, at 12,835.06.

Greece, with­out a gov­ern­ment since Sunday’s elec­tions, appears increas­ingly likely to exit the euro cur­rency union or be forced out. The result­ing uncer­tainty could cause tur­moil through­out global markets.

The spring decline has become a motif on Wall Street. In 2010 and 2011, the Dow climbed in the first three months of the year, then flat-lined or lost ground as events over­seas over­shad­owed mod­est eco­nomic growth in the U.S.

The mar­ket today is tame com­pared with last sum­mer, when the Dow rou­tinely swung by hun­dreds of points a day.

But the atmos­phere is start­ing to resem­ble last year’s as traders sell any­thing deemed risky based on the lat­est head­lines from Europe, said Peter Tchir, who trades a range of invest­ments for his hedge fund TF Mar­ket Advisors.

“The con­cern in Spain is at such a high level that peo­ple trade the indexes or big futures con­tracts and are less dis­crim­i­nat­ing about what risk they’re tak­ing on,” he said.

On Wednes­day, prices fell for com­modi­ties such as energy, cop­per and sil­ver that are needed to sus­tain broad eco­nomic growth but are less valu­able when the econ­omy is weaker and demand wanes.

Bench­mark crude oil, which sold for about $110 per bar­rel ear­lier this year, fell below $100 last week and kept slid­ing. It closed below $97 Wednes­day on the New York Mer­can­tile Exchange, con­tin­u­ing its longest decline since last July.

Com­mod­ity prices also were under pres­sure because the dol­lar rose against the euro, send­ing the euro down as low as $1.2910, its low­est point since Jan. 23. Com­modi­ties are traded in dol­lars, so a strong dol­lar makes them appear more expen­sive to investors who hold for­eign currencies.

Euro­pean stocks are hav­ing one of their worst weeks in months. London’s FTSE 100 index is down 2.2 per­cent this week, its worst per­for­mance since Decem­ber. Stocks in Athens are down 10.8 per­cent, the most since August.

Cash flowed into ultra-safe invest­ments such as U.S. Trea­surys, push­ing the yield on the 10-year note as low as 1.80 per­cent, near a seven-month low. The yield fin­ished the day at 1.84 per­cent as stocks moved off their ear­lier lows.

One rea­son that demand for Trea­surys is increas­ing: As Europe dete­ri­o­rates and hir­ing in the U.S. slows, traders believe that the Fed­eral Reserve is more likely to engage in another round of bond-buying to juice the economy.

Bond-buying by the Fed low­ers bond yields, push­ing more cash into stocks and com­modi­ties. When traders expect the Fed to act, they buy bonds to take advan­tage of the extra demand that the Fed’s buy­ing will create.

Eco­nomic indi­ca­tors and cor­po­rate earn­ings in the U.S. con­tinue to sig­nal recov­ery, albeit a choppy one. The gov­ern­ment said after trad­ing began that U.S. whole­sale stock­piles grew in March at their slow­est pace in four months, a sign demand is too weak for com­pa­nies to ramp up production.

The Stan­dard & Poor’s 500 index and Nas­daq com­pos­ite aver­age both closed well above their lows for the day. The S&P fell 9.14 points, or 0.7 per­cent, to 1,354.58. The Nas­daq dropped 11.56, or 0.4 per­cent, to 2,934.71.

Tchir expects the mar­ket to grow more volatile as traders track dead­lines for indebted Euro­pean nations to repay bond investors or raise cash. For investors who ben­e­fited from the recent rally, he said, “I think it’s time to take money off the table.” There’s too much of a dis­con­nect between the Dow’s recent four-year high and Euro­pean mar­kets that are scrap­ing three-year lows, he said.

Euro­pean stocks rose into the close, recov­er­ing some ear­lier losses. Indexes in France and Lon­don closed down less than 1 per­cent after steep losses earlier.

In cor­po­rate news:

— Chiq­uita Brands plunged 28.9 per­cent after the banana pur­veyor reported first-quarter earn­ings that were far below the expec­ta­tions of Wall Street analysts.

— Macy’s lost 3.8 per­cent after the depart­ment store chain made an earn­ings fore­cast that fell below Wall Street projections.

— Walt Dis­ney Co. rose 1.6 per­cent, the most of the 30 stocks in the Dow, after the whimsy-production con­glom­er­ate said its fis­cal second-quarter earn­ings out­paced expectations.

Posted by AP News on May 9 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.