Wednesday, May 30, 2012

 

   By Jonathan Cheng 

 

U.S. stocks slumped as rising worries about the health of Spanish banks stoked concerns about the euro zone's debt crisis.

The Dow Jones Industrial Average dropped 149 points, or 1.2%, to 12433 in late Wednesday trading. With one day of trading remaining in May, the Dow is on pace for its worst monthly performance in two years.

The Standard & Poor's 500-stock index lost 17 points, or 1.3%, to 1315, while the Nasdaq Composite shed 30 points, or 1%, to 2841.

Leading the stock declines were U.S. companies with significant exposure to global growth. Energy stocks fell the most as crude oil tumbled more than 3%, while Alcoa and Caterpillar were among the biggest drags on the Dow. Defensive stocks in telecommunications and health care fared relatively better on a day that saw all 10 sectors of the S&P 500 and all but one of the Dow components trade lower.

The fall in risky assets came as Spain's banks saw an erosion in deposits. Retail and corporate deposits in Spanish banks fell EUR31.44 billion ($39.31 billion) to EUR1.624 trillion, their lowest since the euro-zone debt crisis began, according to data published by the European Central Bank.

In response, the Spanish 10-year bond shot up 0.23 percentage point to 6.669%, around its highest level since November, according to Tradeweb.

Separately, the European Union's executive arm said in a report that the 17 countries that use the euro should consider setting up a "banking union" that allows them to share the burden of bank failures. Meanwhile, euro zone economic sentiment fell more than expected in April.

The Stoxx Europe 600 index finished down 1.5% and France's CAC-40 lost 2.2%. In Spain, the IBEX 35 declined 2.6%, finishing near the day's lows. The euro, meanwhile, slumped to $1.2373, its lowest level since the summer of 2010 and down from $1.2503 late Tuesday in New York.

The European concerns sent demand for Treasurys higher, pushing the yield on the 10-year note down to a record low of 1.626%. The yield on Germany's two-year bond, another haven, fell to 0.002%, according to Tradeweb.

"Even though people are complaining about yields, they're clearly willing to take the low yields in exchange for security," said Jennifer Ellison, principal and portfolio manager at Bingham, Osborn & Scarborough in Palo Alto, Calif. "What it's saying about U.S. and global economic growth is not positive."

She added: "We're really in uncharted territory with Greece, or any country, leaving the euro zone--there's no telling what the impact of that would be."

Worries about Europe spilled into the crude-oil market, as prices dropped more than 3% to below $88 a barrel. Gold prices rose to about $1,565 a troy ounce. The yen fell against the dollar.

In Asia, stocks softened as hopes faded that China would launch stimulus measures. China's Shanghai Composite lost 0.2% and Hong Kong's Hang Seng Index declined 1.9%.

Disappointment also came from the day's U.S. economic data, which showed pending home sales for April declining, compared with expectations for a flat reading.

In company news, Research In Motion slid 7.8% after the company said Tuesday that it expected to report an operating loss for the current quarter, compared with analyst expectations of a profit, as competition for its BlackBerry devices has led to lower volumes and a more-competitive pricing environment.

Apple rose 1.3% after Chief Executive Tim Cook said the tech company has "intense interest" in TV and said the company wants to move as much manufacturing to the U.S. as possible.

Facebook fell 2.3% one day after the stock tumbled 9.6% as options trading began on Tuesday.

Pep Boys-Manny Moe & Jack plunged 20% after the auto-parts retailer said it terminated the agreement to be taken private by Gores Group, and that it will receive a $50 million termination fee.

FormFactor climbed 6.9% after the semiconductor-equipment maker raised its second-quarter revenue outlook.

SLM rose 3.3% after the student lender said it was boosting its share-repurchase program by $400 million.

UDR declined 3.7% after the real-estate investment trust said it plans a public offering of 19 million shares of common stock.

(END) Dow Jones Newswires

May 30, 2012 15:46 ET (19:46 GMT)