Stocks in U.S. Decline as ECB Chief Damps Speculation on Bond Purchases

By Rita Nazareth - Dec 9, 2011 5:32 AM GMT+0700

U.S. stocks fell, snapping a three- day gain, as the European Central Bank damped speculation it would boost debt purchases and amid a report Germany rejected some proposals to fight the crisis at a summit of leaders.

Banks tumbled as Morgan Stanley (MS), Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) retreated at least 5.2 percent. Alcoa Inc., Intel Corp. and General Electric Co. dropped more than 2.5 percent, pacing declines among the biggest American companies. Hartford (HIG) Financial Services Group Inc. decreased 8.2 percent after the insurer said it is targeting additional cost cuts as it copes with a “fragile economic recovery.”

The Standard & Poor’s 500 Index retreated 2.1 percent to 1,234.35 at 4 p.m. New York time as 487 out of 500 stocks declined. The Dow Jones Industrial Average lost 198.67 points, or 1.6 percent, to 11,997.70. The Russell 2000 Index of small companies tumbled 3.1 percent to 722.68.

“There’s a temptation to take capital out of the market,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1 billion, said in a telephone interview. “You have the concern that the last few times Europe leaders have sat down and talked about this they made a mess of it. People are preparing for the worst.”

Comments from ECB President Mario Draghi roiled the global markets. He kept the onus on European leaders meeting in Brussels to solve the debt crisis by repeating his call for a “fiscal compact” and denying he had hinted the ECB would automatically support such an initiative with more bond purchases.

German Opposition

Equities extended losses in the final hour of trading as Reuters reported that Germany reiterated its opposition to some of the debt-crisis fighting measures being discussed at the summit in Brussels, including issuing common euro-zone debt or running the temporary and permanent bailout funds simultaneously. The European Banking Authority said European Union banks must raise 114.7 billion euros ($152.8 billion) in fresh capital, up from a previous estimate of 106 billion euros.

Today’s decline sent the S&P 500 lower for 2011. It has pared its decline from the end of April to 9.5 percent after dropping as much as 19 percent from this year’s high in April. The gauge has erased its year-to-date loss six times since the beginning of October amid speculation Europe’s steps to tame its crisis would avert a global recession.

All 10 industries in the S&P 500 declined as financial shares tumbled 3.7 percent as a group. The KBW Bank Index (BKX) sank 3.9 percent as all of its 24 stocks retreated. Morgan Stanley declined 8.4 percent, the most in the S&P 500, to $15.88. Citigroup dropped 7 percent to $27.75. JPMorgan fell 5.2 percent to $32.22, for the biggest decline in the Dow.

Alcoa, Intel, GE

The Morgan Stanley Cyclical Index retreated 2.9 percent, while the Dow Jones Transportation Average sank 2.5 percent amid concern about economic growth. Alcoa slid 4.3 percent to $9.47. Intel lost 3.7 percent to $24.71. GE fell 2.6 percent to $16.31.

Hartford tumbled 8.2 percent to $17.20. Core earnings, which exclude some investment results, will be $3.30 to $3.60 a share next year, according to a presentation today from the company. That compares with the $3.51 average estimate of 18 analysts surveyed by Bloomberg.

Costco Wholesale Corp. (COST) declined 2 percent to $85.76 after the largest U.S. warehouse-club chain said profit margin shrank in the first quarter because of rising costs.

McDonald’s Corp. (MCD) rose 0.5 percent to $96.92, a record. The shares had the only gain in the Dow. The world’s largest restaurant chain said sales at stores open at least 13 months rose 7.4 percent globally last month, driven by demand in Japan and China.

Stocks May Gain

The U.S. stock market may gain in coming months as economic prospects for the country improve, said Dennis Gartman, an economist and the publisher of the Gartman Letter. At the Inside Commodities conference today in New York, Gartman said he’s starting to get more “bullish” on U.S. equities.

Stock-futures rallied earlier today after the ECB cut interest rates and offered banks unlimited cash for three years. In the U.S, data showed that fewer Americans than forecast filed applications for unemployment benefits last week, reflecting a drop in firings that may signal the job market is on the mend.

“We have two positives and a question mark,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The unemployment claims show the U.S. continues to decouple from Europe’s problems. The second thing is the ECB’s further commitment to stabilize the bank system. The question mark is left to European leaders. We need to see more of a commitment to enforce fiscal discipline and a plan for economic growth.”

200-Day Average

The S&P 500 today is more than 1 percent below its average price in the last 200 days (SPX) after briefly surpassing it in each of the last three days, data compiled by Bloomberg show. The index hasn’t closed above the chart line since Nov. 8, the day before a decline of 3.7 percent. It fell 5.2 percent in the two days after it rose above the 200-day average on Oct. 28.

“It isn’t encouraging for the bulls to see the S&P 500 continue to find trouble near its 200-day moving average,” Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research, said in a telephone interview from Cincinnati. “Then, consider the year-to-date break-even is around 1,257, and you have two logical areas of potential resistance that are clearly holding the market back here.”

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

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