Stocks plunge as economic, Europe worries continue

Stocks plunge as investors fret about Europe, US economy; Dow loses more than 350 points

Companies:

• • Alcoa, Inc.
  • General Motors Company
  • Gap Inc.

• Topics:

  • Stocks

Traders work on the floor of the New York Stock Exchange on Thursday, Aug. 4, 2011 in New York. (AP Photo/Jin Lee)

David K. Randall, AP Business Writer, On Thursday August 4, 2011, 12:45 pm

NEW YORK (AP) -- The Dow Jones industrial average plunged more than 300 points and erased its gains for the year as investors grew more concerned about economic weakness in the U.S. and Europe.

The Standard & Poor's 500 index fell more than 3 percent, bringing it 10 percent below its recent high of 1,363 reached on April 29. A decline of 10 percent is considered to be a market correction. The Dow Jones industrial average is now down more than 1,100 points from July 21.

Oil fell 4 percent to $88 a barrel on worries demand will fall because of the slowing economy. Oil had traded over $100 as recently as June 9.

"We are continuing to be bombarded by worries about the global economy," said Bill Stone, chief investment strategist at PNC Financial.

The Dow Jones industrial average fell 325 points, or 2.7 percent, to 11,571 in midday trading. The S&P 500 lost 39, or 3.3 percent, to 1,221. The Nasdaq composite shed 89, or 3.3 percent, to 2,603. The losses in the Dow were the largest since June 2010, when it fell 323 points.

Money poured into investments that are seen as relatively safe when markets are turbulent. Gold rose 1 percent to $1,680 an ounce. The yield on the 10-year Treasury note fell to 2.51 percent, its lowest level of the year. The yield on the 2-year Treasury note hit a record low of 0.265 percent. Bond yields fall when demand for them increases.

Large investors have moved so much money into cash accounts at Bank of New York that on Thursday the bank said it would begin charging some clients a 0.13 percent fee to hold their cash.

"In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment," the bank said in a statement to The Associated Press. Bank of New York clients include pension funds and large investment houses.

"Investors are deciding that now is the time to take risk off the table," said Brian Gendreau, market strategist for Cetera Financial Group. Gendreau said that some investors are now wondering whether stocks will have a prolonged slump similar to the aftermath of the Great Depression.

European stocks fell broadly because of concerns that Italy or Spain may need help from the European Union. The benchmark stock indexes in Italy, Germany and England each fell 3 percent.

Companies that make most of their profits when the global economy expands fell the most. Caterpillar, Alcoa and Chevron led the Dow lower with losses of nearly 4 percent each.

Some traders are selling ahead of Friday's employment report, which is expected to show that unemployment remained at 9.2 percent last month. A rise in the unemployment number would likely push stocks lower again.

The U.S. government said before the market opened that the number of people who applied for unemployment benefits for the first time was only slightly lower last week to 400,000. That's still above the 375,000 level that economist say indicates a healthy job market. It was the latest indication of weakness in the U.S. economy.

Kraft Foods was the only company among the 30 stocks in the Dow to rise. Kraft rose 2 percent after the company said Thursday that it plans to split into two. One company will focus on snacks such as Oreo cookies and the other will target the North American grocery business.

All 10 industry groups in the S&P index fell. Energy, financial and industrial companies each lost 2 percent or more.

Stock trading has been volatile this week because of concerns that the U.S. economy is weakening. Manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy. Those reports have called into question estimates from economists, including Federal Reserve Chairman Ben Bernanke, that the economy will grow more quickly in the second half of the year.

The sell-off comes at a time when corporate profits are growing. The forward price to earnings ratio of the S&P 500 has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits.

General Motors Co. fell 2 percent despite beating analyst estimates. CVS Caremark fell nearly 4 percent after its revenue slipped last quarter.

Several national retailers are announcing July sales results throughout the day. Target, Gap Inc. and Macy's each fell by more than 1 percent, in part because of concerns that consumers would spend less if the economy continues to slow down.

The Dow rose 30 points Wednesday -- after being down 166 -- to break an eight-day losing streak. Nine days would have been the longest since February 1978. The S&P 500 index rose 6 points and broke a seven-day streak.

---

AP business writers Dave Carpenter and Pallavi Gogoi contributed to this story.

http://finance.yahoo.com/news/Stocks-slump-as-economic-apf-169769799.html?x=0

Debt crisis pushes Europe toward economic reforms

AP – People line up outside a government job center in Madrid on Friday, July 2, 2010. In the ashes of Europe's …

RELATED QUOTES

^DJI	9,686.48	-46.05
^GSPC	1,022.58	-4.79
^IXIC	2,091.79	-9.57

By DANIEL WOOLLS and COLLEEN BARRY, Associated Press Writer – Fri Jul 2, 2:53 pm ET

MADRID – In the ashes of Europe's debt crisis, some see the seeds of long-term hope.

That's because the threat of bankruptcy is forcing governments to implement reforms that economists argue are necessary to help Europe prosper in a globalized world — but were long viewed as being politically impossible because of entrenched social attitudes.

Changes such as making it easier for companies to fire workers or stare down unions were until recently dismissed as simply not being the "European way." Similarly, many were skeptical that European governments would or could tackle bloated public payrolls, trim entitlements or force people to retire later.

When it became clear earlier this year that Greece's debt crisis was rattling markets everywhere and dragging down Europe's common currency, it was business as usual: European governments seemed to dither, disunited.

Germany came in for particular criticism, appearing to hold up a bailout of Greece because it was unpopular with German voters.

But over two months of hectic activity a new narrative has started to settle in, to the surprise of many a euro-skeptic: When the chips were truly down, the countries of the European Union found a way to strike hard and fast — and together.

European leaders first joined with the International Monetary Fund in May and agreed on a $1 trillion rescue fund for financially troubled countries. Then Greece announced deep budget cuts, Spain cut employer costs and France raised its retirement age. France also joined Germany and the U.K in imposing harsh budget cuts.

To Marco Annunziata, the London-based chief economist for Unicredit, those are signs that Europe is finally facing the reality that it must make structural changes.

"Governments are reluctantly acknowledging that reforms are needed and there is no more room for delays and excuses," he said. "It looks like perhaps we are past the longest stage of denial, which in Europe has lasted at least 20 years."

Annunziata said governments now face a crucial test of political will: Can they implement the reforms they have announced?

Already in Italy, Premier Silvio Berlusconi has suggested he will reconsider some of the austerity measures he announced last month to trim the deficit after facing opposition and seeing his popularity dip. And France will have to steel itself for strikes.

Still, there are signs that Europe may muster passing grades.

In Spain, employers had long moaned that laying off workers is so expensive that they were wary of hiring in the first place. Political leaders felt no urgency as the economy grew at a healthy clip, buoyed by a construction boom and cheap credit. Nor did they when the boom ended and the jobless rate soared to 20 percent.

Then came the May 28 decision by the credit rating agency Fitch to downgrade Spanish debt.

Facing a growing risk of a debt default, the Spanish parliament quickly passed measures that make firing cheaper and even let companies talk their way out of collective bargaining agreements if times go bad.

The changes were imposed by Prime Minister Jose Luis Rodriguez Zapatero's government almost overnight, after nearly two years of state-sponsored talks between unions and management finally collapsed a few weeks ago.

Sandalio Gomez, a professor of management at IESE Business School in Madrid, noted that the government also has enacted euro15 billion ($18.7 billion) in spending cuts to slash the deficit. The cuts reduce civil servants' wages and public investment and freeze retirement pensions.

"If we were not in the midst of a sovereign debt crisis they wouldn't be doing it," said Stephen Lewis, chief economist at Monument Securities. "They wouldn't be inviting the negative reaction from their own labor forces."

Spain's workplace package was passed as a fast-track decree and is now subject to amendments by Parliament over the next month or so.

Under the old law, many workers have contracts that give 45 days of severance pay per year worked. These will remain for old contracts, but for new ones the figure goes down to 33 days of severance per year of work.

Also, companies in economic trouble can now negotiate with workers to lower salaries and reduce shifts or other terms of employment, and call in an arbitrator for a binding ruling if the talks hit a deadlock. That's still generous, compared with practices in the U.S. and other less regulated economies, but a start.

Spanish unions are furious and have called a general strike, but not until Sept. 29, after the sacrosanct monthlong summer vacation ends.

Like Spain, Greece is shaking up its stodgy, rule-bound practices on hiring and firing. The hope is to encourage hiring and stimulate economic growth that will be needed to help pay down a swollen debt load.

Last year, the newly elected government revealed that its predecessors had fudged the country's deficit numbers. Prohibitively high interest rates soon followed, prompting Greece to accept a euro110 billion ($138 billion) EU and IMF bailout, with policed austerity as the price.

Last month, Greece announced that it would allow companies to lay off more people and make lower severance payments. The maximum notice period, if Parliament approves, would be reduced from 24 months to six months.

The short-term response to those moves has been a wave of strikes and riots. Demonstrations also have been held in Spain and France.

In fact, such measures were called for by the European Union in its Lisbon Strategy, an ambitious blueprint adopted in 2000 whose goal was to make Europe the world's most competitive economic bloc. Little got done.

One reason: the courage to enact change can be costly. Then-Chancellor Gerhard Schroeder loosened Germany's heavily regulated labor market as part of social spending reforms he undertook in 2003 and implemented for the most part by 2005.

Economists say the changes helped get the German economy on track before the recent financial crisis. But they hurt Schroeder and his Social Democrats politically — in 2005, voters dumped him and Angela Merkel became chancellor.

Not everyone has the same sense of urgency. While Italy's debt totals 115 percent of gross domestic product, higher than Spain's, few structural reforms are being discussed there.

One reason is that its unemployment rate of 8 percent is far better than in Spain, thanks to government-sponsored jobs support programs. Interest rates on Italy's long-term debt also haven't spiked as they did inSpain and Greece — at least not yet.

___

AP Business Writer Barry contributed from Milan.

http://news.yahoo.com/s/ap/20100702/ap_on_bi_ge/eu_europe_getting_serious

Stocks tumble as new doubts about Greek aid emerge

Stocks in US, Europe slump as fears of debt contagion from Greece worsen; Dow drops 225 points

• • Alcoa, Inc.
  • Caterpillar Inc.

• Topics:

  • International
  • Industrial Goods

A Specialist holds his head as he works his post on the trading floor of the New York Stock Exchange Tuesday, May 4, 2010, in New York. Stocks plunged around the world Tuesday as fears spread that Europe's attempt to contain Greece's debt crisis would fail. (AP Photo/David Karp)

Related Quotes

Symbol	Price	Change
AA	12.58	-0.57
CAT	66.70	-3.24

Tim Paradis, AP Business Writer, On Tuesday May 4, 2010, 6:00 pm EDT

NEW YORK (AP) -- Stocks plunged around the world Tuesday as fears spread that Europe's attempt to contain Greece's debt crisis would fail. The euro fell to its lowest point against the dollar in a year.

The Dow Jones industrial average lost 225 points, its biggest drop in three months. The slide erased a 143-point gain from Monday. The Dow and broader indexes each fell more than 2 percent. Meanwhile, Treasury prices rose on increased demand for safe investments.

Stocks have seesawed in the past week as European countries' efforts to agree on a bailout package for Greece proceeded in fits and starts. An agreement finally came together over the weekend, but its ballooning size of $144 billion has investors worried that Europe would have an even tougher time assembling an aid package if a larger country such as Spain or Portugal were to get in trouble. Traders are concerned that problems in Greece and other countries could spill over to the rest of Europe and in turn, the U.S.

The market's plunge wasn't a surprise to some analysts who have warned for weeks that stocks were due for a retreat. After Monday's rally, the Standard & Poor's 500 index was up almost 14 percent from its 2010 low of 1,056.74, reached Feb. 8. Investors have spent the past three months largely shrugging off the problems in Europe and focusing instead on the continuing signs of improvement in the U.S. economy.

The stock drop was a reminder that it doesn't take much to rattle investors who are on alert for anything that could disrupt the economic recovery. The avalanche of selling could continue while investors await answers on Greece. But analysts said most drops are likely to be mild because buyers have been using pullbacks as opportunities to buy.

Tuesday's slump marked the fifth time in six days that the Dow rose or fell by triple digits. The market's moves are reminiscent of the fearsome swings in the fall of 2008 and early 2009 when investors were panicked over how bad the recession would get.

Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, said sudden turns in the market are to be expected as traders wrestle with concerns that stocks are overheated.

"The market has kind of gotten itself into a volatile trading range," Fullman said.

Investors are worried that other cash-strapped European governments could also ask for emergency loans while the economy of the entire region is still recovering.

"It's not as though even the strongest economies of Europe are doing particularly well," said Mike Shea, managing partner at Direct Access Partners LLC in New York. "Why is a plumber in Germany going to bail out Greece or Portugal?"

The Dow fell 225.06, or 2 percent, to 10,926.77, its lowest close since April 7. The Dow was down as much as 283 points at its low of the day.

The S&P 500 index fell 28.66, or 2.4 percent, to 1,173.60. As with the Dow, it was the worst drop for the S&Psince Feb. 4.

The Nasdaq composite index fell 74.49, or 3 percent, to 2,424.25. The Nasdaq's more intense drop reflected the fact that it includes smaller companies seen as riskier investments than the big names in the Dow or S&P 500.

Investors rushed to safer holdings like Treasurys, pushing interest rates sharply lower. The yield on the benchmark 10-year Treasury note fell to 3.60 percent from 3.69 percent late Monday.

The Chicago Board Options Exchange's Volatility Index, which is known as the market's fear gauge, soared 18 percent. That is a signal that more investors are betting on big drops in the market.

The euro again fell against the dollar as traders turned away from the currency used by 16 European Union countries including Greece. When investors start doubting a country's economic strength, they tend to sell its currency.

Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York, said Greece's troubles aren't enough to spoil a global rebound but that investors are concerned that this small hole in the world economy will become bigger.

"My suspicion is that this won't end up being large enough to really cause the kind of problems that the market is obsessed with," he said.

The dollar rose against other major currencies, especially the euro. The euro sank as low as $1.2994 in New York, its weakest point since April 2009. It was worth $1.3212 late Monday and had traded as high as $1.51 last November.

The stronger dollar is a negative for investors because it would cut into profits for U.S. companies with sizable foreign operations. When the dollar is up, overseas profits translate into less money. The rising dollar also makes it more expensive for foreign buyers to purchase commodities like oil. That hurts demand.

Crude oil fell to $3.45, or 4 percent, to $82.74 per barrel on the New York Mercantile Exchange.

The drop in commodities hurt companies like aluminum producer Alcoa Inc., which fell 57 cents, or 4.3 percent, to $12.58. Caterpillar Inc., the maker of construction and mining equipment, slid $3.24, or 4.6 percent, to $66.70. Caterpillar posted the steepest percentage drop among the 30 stocks that make up the Dow industrials.

Banks also fell in response to the debt problems. Spain's Banco Santander S.A. fell $1.08, or 8.8 percent, to $11.14. Bank of America Corp. fell 50 cents, or 2.8 percent, to $17.56.

"Everybody is worried about who is going to be next," Fullman said. He predicted stocks would resume their climb after a drop of a day or two. "The trend of the market is still up."

Improved economic reports brought little help to stocks.

The Commerce Department said orders to U.S. factories rose 1.3 percent in March. Analysts had expected a drop. The National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.

About six stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 6.6 billion shares, compared with 5 billion Monday.

The Russell 2000 index of smaller companies fell 23.12, or 3.2 percent, to 709.70.

Britain's FTSE 100 and Germany's DAX index each dropped 2.6 percent, and France's CAC-40 tumbled 3.6 percent. Greece's main index fell 6.7 percent, while Spain's Ibex 35 index lost 5.4 percent. Portugal's PSI 20 fell 4.2 percent.

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