U.S. Stocks Retreat as Concern Grows Over Europe’s Handling of Debt Crisis

By Whitney Kisling and Inyoung Hwang - Sep 29, 2011 3:35 AM GMT+0700

U.S. stocks declined, halting a three-day rally for the Standard & Poor’s 500 Index, amid growing concern that European leaders are divided over how to handle Greece’s debt crisis.

All 10 industry groups in the S&P 500 fell at least 0.6 percent, with companies most-tied to economic growth dropping the most. Dow Chemical Co. (DOW) and Alcoa Inc. (AA) slid at least 4.9 percent as commodities tumbled. Morgan Stanley and Bank of America Corp. (BAC) lost more than 4.9 percent, pacing declines among financial shares. Amazon.com Inc. (AMZN) rose 2.5 percent after the company launched its Kindle Fire tablet computer, taking aim at Apple Inc.’s bestselling iPad.

The S&P 500 lost 2.1 percent to 1,151.06 at 4 p.m. New York time, after rising as much as 0.8 percent earlier and rallying 4.1 over the previous three days. The Dow Jones Industrial Average fell 179.79 points, or 1.6 percent, to 11,010.90 today, with all 30 stocks retreating.

“Europe is the issue that is first and foremost in everyone’s mind, so any news that comes out on that does have a strong impact on the market,” Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “Any weakness there is going to be a drag worldwide.”

A four-day rout last week erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The decline left the S&P 500 trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, Bloomberg data shows.

Bigger Writedowns

Stocks fell today as an official said the European Commission is resisting a push to impose bigger writedowns on banks’ holdings of Greek government debt than those agreed at a July 21 summit. The commission opposes ideas that are being floated by some government officials to get banks to accept bigger so-called haircuts and doesn’t want to have talks about any such attempt, the official said on condition of anonymity because the deliberations are private.

Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility, the European Securities and Markets Authority said.

The S&P 500 had climbed over the past three days amid optimism that euro-area nations were making progress on plans to tame the region’s government debt crisis.

‘Pins and Needles’

“The market is on pins and needles over the whole European debt problem,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $75 billion, said in an e-mail. “Every new rumor or little piece of news moves the market in one direction or the other a percent or two. It’s frustrating!”

Stocks rose earlier today as a Commerce Department report showed orders for U.S. capital goods climbed in August by the most in three months, a sign business investment continues to support the recovery. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent, the most since May. Demand for total durable goods dropped 0.1 percent, less than forecast.

The S&P 500 has been trading between about 1,100 and 1,300 since the beginning of August. The benchmark gauge for U.S. equities climbed as high as 1,363.61 on April 29, before starting a decline of as much as 18 percent through August. The index is down 8.5 percent for the year. Strategists estimate it will climb to 1,305 by year-end, representing a 13 percent advance, according to the average in a Bloomberg survey.

Commodity Companies

Raw-material companies fell the most among 10 groups in the S&P 500 today, tumbling 4.5 percent. Energy shares lost 3 percent as a group, as the Thomson Reuters/Jefferies CRB Index of 19 commodities fell 2.5 percent. The Morgan Stanley (MS) Cyclical Index of companies most-tied to the economy lost 3.3 percent. The Dow Jones Transportation Average, a proxy for the economy, lost 2.9 percent.

Alcoa fell 4.9 percent to $9.97. Dow Chemical, the largest U.S. chemical maker, slid 6.2 percent to $23.76.

The KBW Bank Index lost 3.5 percent, with Morgan Stanley falling 5.4 percent to $14.16. Bank of America slid 4.9 percent to $6.16, for the largest decline today for the Dow. A group of S&P 500 financial shares have plunged 27 percent since the April high, the biggest drop among the 10 industry groups. Utilities companies have been the only group to gain, adding 1.2 percent in the same period.

Amazon.com shares rose 2.5 percent, the second-most in the S&P 500, to $229.71. The world’s largest online retailer introduced its Kindle Fire, a device that’s smaller and less than half the price of Apple’s iPad. Chief Executive Officer Jeff Bezos is betting he can leverage Amazon’s dominance in e- commerce to pose a challenge to the iPad, after tablets from rivals such as Hewlett-Packard Co. and Research In Motion Ltd. have fallen short.

Jabil Circuit Inc., gained the most in the benchmark index, adding 8.4 percent to $18.84. The U.S. contract electronics manufacturer forecast first-quarter earnings will be at least 62 cents a share, exceeding the average analyst projection, data compiled by Bloomberg show.

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net