BL: Stocks in U.S. Drop as Concerns Over Europe Overshadow Recovery Optimism
By Rita Nazareth
June 3 (Bloomberg) -- U.S. stocks fell, erasing an early rally, as concern that Europe’s debt crisis will worsen and growth will slow in China overshadowed optimism that the American economy is gaining momentum.
Wells Fargo & Co. and JPMorgan Chase & Co. lost more than 1 percent to lead banks lower as the euro neared a four-year low versus the dollar on speculation the European Central Bank may need to take steps to boost liquidity in the financial system. Freeport-McMoRan Copper & Gold Inc. tumbled 5.5 percent after saying China’s plans to curb growth will hurt demand for copper. BP Plc’s U.S. shares erased gains as House Democrats prepared a bill to eliminate the $75 million cap on damages large companies must pay for oil spills.
The S&P 500 lost 0.4 percent to 1,093.98 as of 12:37 p.m. in New York after its 0.7 percent advance earlier failed to take it above its 200-day average near 1,106. The Dow Jones Industrial Average fell 56.15 points, or 0.6 percent, to 10,193.39. The euro slipped 0.7 percent to $1.2160.
“There has been speculation in the past day or so that the ECB is going to have to roll out some kind of debt guarantee program,” said Greg Woodard, portfolio strategist at Manning & Napier in Fairport, New York, which manages $30 billion. “That signals to the markets that maybe the ECB knows something that the market doesn’t, suggesting that conditions are worse than we know about.”
The S&P 500 has slumped 10 percent from this year’s high on April 23 as the sovereign-debt crisis in Europe and slowing growth in China threatened to derail the global economic recovery. The index lost 8.2 percent in May, its worst month since February 2009. The Dow’s 7.9 percent drop was the most during May since 1940.
Forint Tumbles
Equities also slumped today as the Hungarian forint tumbled 3 percent against the dollar on concern the nation faces a Greece-like debt crisis.
Early gains in U.S. stocks came after service industries expanded in May for a fifth straight month, showing the U.S. recovery is broadening. The Institute for Supply Management’s index of non-manufacturing businesses, which makes up almost 90 percent of the economy, held at 55.4 for a third month. Readings above 50 signal expansion.
The number of Americans seeking jobless benefits last week fell by 10,000 to 453,000 and an ADP Employer Services report based on private-sector payrolls showed a gain of 55,000 jobs, below the 70,000 economists had expected.
‘Big Number’
The releases come a day before the U.S. Labor Department’s monthly jobs report. Payrolls climbed by 523,000 in May, the fifth straight month of gains and the biggest since 1983, according the median forecast.
Goldman Sachs Group Inc. raised its estimate for how much payrolls increased in the U.S. last month to 600,000 from 500,000, according to a report sent to clients today.
“There’s a big number coming out tomorrow,” said Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $23 billion. “The stock market is in a holding pattern.”
U.S. stocks began erasing earlier gains after the S&P 500 rose to an intraday high of 1,105.67, above a level seen as a “resistance” by analysts to who study charts to make forecasts. The S&P 500 lost ground at around 1,104 on May 20 and sank to its 2010 intraday low on May 25. The benchmark had since failed to rise above that level.
The market “needs to close above 1,104 to complete a short-term bottom,” said Craig S. Peskin, co-head of technical analysis research at Concept Capital in New York. “This is a level everyone sat around for weeks. We’d like the market to get above it in the next couple of days. The longer you sit around, the market kind of loses its momentum.”
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: June 3, 2010 12:40 EDT
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