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Stocks turn lower after euro falls to 4-yr low
Stock slide after euro falls to new four-year low; Treasury prices jump on demand for safety
{"s" : "wmt","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Stephen Bernard and Tim Paradis, AP Business Writers, On Tuesday May 18, 2010, 3:31 pm
NEW YORK (AP) -- Stocks resumed their sharp drop Tuesday, again following the lead of the falling euro. Analysts said news that German regulators plan to limit some kinds of short selling contributed to the drop in stocks.
The Dow Jones industrial average fell about 90 points in late afternoon trading.
The euro gave stocks a boost early in the day when 10 European Union countries sent bailout money to Greece. The move raised confidence about Europe's ability to prevent its debt crisis from spreading to other economies including the U.S.
By afternoon, a drop in the euro sapped the market's strength. Treasury prices rose after demand for safer investments increased.
The euro, the currency shared by 16 European nations, has been driving stock trading for weeks as investors interpreted its slide as a sign of continuing economic problems in Europe. It hit a new four-year low of $1.2162 on Tuesday afternoon.
Meanwhile, Germany said it is banning "naked" short selling, which occurs when traders bet on a stock or investment that they doesn't own. The ban covers government debt certificates and shares of several financial companies.
Naked short selling was cited as one of the factors in world markets' turbulence during the 2008 financial crisis. The latest move brought reminders of the desperation that U.S. regulators signaled in trying to stabilize the market and underscored a fear that a further drop in the euro will continue to pound world markets.
Stock trading has been volatile for weeks. The Dow rebounded from a drop of 184 points to end the day with a gain of about 6 points after the euro regained its early losses.
Mike Shea, managing partner at Direct Access Partners LLC in New York, said that with so many unanswered questions about the ballooning debts in Europe it isn't surprising to see traders selling.
"There is a prudent reduction of risk," Shea said.
In late afternoon trading, the Dow fell 89.56, or 0.8 percent, to 10,536.27. The Dow had been up 93 points and down nearly 144 points.
The broader Standard & Poor's 500 index fell 13.90, or 1.2 percent, to 1,123.04, while the Nasdaq composite index fell 31.86, or 1.4 percent, to 2,322.37.
Bond prices jumped, driving yields lower. The yield on the benchmark 10-year Treasury note fell to 3.39 percent from 3.50 percent late Monday.
Gold fell $13.10 to $1215.00, while crude oil rose $1.37 to $71.45 per barrel on the New York Mercantile Exchange.
While so much attention has focused on Europe in recent weeks, investors have largely ignored signs of economic growth. Stocks had been posting solid gains earlier in the year on steady signs of improvement in the U.S. economy. Encouraging signals on the economy gave early support to stocks Tuesday. The Commerce Department said home construction jumped 5.8 percent in April, more than expected and the strongest level since late in 2008.
John Merrill, chief investment officer at Tanglewood Wealth Management in Houston, said investors are doing some mental juggling. They see signs that the U.S. economy is strengthening but still have concerns that Europe's problems will undermine the global economy's rebound.
"There are just two alternative themes and it just depends on where the focus is," he said.
Wal-Mart Stores Inc., the world's largest retailer and one of the stocks that makes up the Dow Jones industrials, rose 2.8 percent after reporting better-than-expected earnings.
A Labor Department report indicated that inflation remains benign. The Producer Price Index, which measures the price of goods before they reach consumers, fell 0.1 percent in April because of a drop in food and energy prices. Economists polled by Thomson Reuters had forecast a jump of 0.1 percent.
Excluding volatile food and energy prices, the index fell 0.2 percent in April, just slightly higher than analysts expected.
Nearly three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares, compared with about 1 billion traded at the same point Monday.
The Russell 2000 index of smaller companies fell 11.08, or 1.6 percent, to 684.63.
Britain's FTSE 100 index rose 0.9 percent, Germany's DAX index gained 1.5 percent, and France's CAC-40 rose 2.1 percent. Japan's Nikkei stock average rose 0.1 percent.
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