Stocks falter over Cyprus bailout
Stocks closed lower on Wall Street as investors worried that a controversial proposal to seize money from depositors in Cyprus could set off another bout of anxiety over Europe’s shared currency.
The Dow Jones industrial average fell 62.05 points, or 0.4%, to 14,452.06 yesterday. It had plunged as much as 110 points early on, briefly turned positive in the afternoon then fell back again in the last hour of trading.
The Standard & Poor’s 500 index fell 8.60 points, or 0.6%, to 1,552.10 The Nasdaq composite dropped 11.48 points, or 0.4%, to 3,237.59.
European markets recovered most of an early slide and closed with modest losses. Yields on government bonds issued by Spain and Italy edged higher and the euro fell to a three-month low against the dollar.
The market rally that has pushed the Dow to record levels this year has been punctuated by concerns about the euro-region’s lingering debt crisis.
The Dow fell 1.6% on February 25, its biggest wobble this year, after elections in Italy threw the country into political paralysis, endangering crucial economic reforms.
“Europe has got problems,” said Uri Landesman, president of Platinum Partners, a hedge fund. “You could get more stuff like this and the market isn’t priced to handle that.”
Markets in Europe and Asia also fell during early trading, before retracing some of their losses later in the day. Germany’s DAX index dropped 0.4% and Spain’s main stock index shed 1.3%. Indexes in Britain and France each lost 0.5%.
The euro fell almost a penny against the dollar to 1.2954 dollars, touching its lowest level in three months. Gold climbed 12 dollars to 1,604.60 dollars an ounce.
The US stock market’s reaction to eurozone developments has become more muted over time.
The Dow slumped more than 8% last year between May 1 and June 1 on concerns that Spain and Italy would be dragged into Europe’s debt crisis.
While the Dow initially dropped last month in reaction to the Italian election results, it has since gained 4.6%. Likewise the market recovered much of the early loss yesterday prompted by Cyprus’s bail-out deal.
The stock market’s resilience suggests that traders consider the Cyprus situation to be contained for now, said Quincy Krosby, a market strategist for Prudential.
The threat of rising volatility may also deter the Fed from thinking about ending its economic stimulus programme. The central bank starts its second two-day policy meeting of the year today.
“Absent the Cyprus flare-up, the markets were slowing a bit and it looked as if investors were digesting the gains and waiting for the next catalyst,” said Mr Krosby.
Financial stocks were the biggest decliners in the S&P 500. Investment bank Morgan Stanley fell 60 cents, or 2.5%, to 22.99 dollars. Citigroup dropped 1.02 dollars, or 2.2%, to 46.24 dollars.
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