[Infowarrior] - Dow Plunges 998 Before Paring Losses

[Richard Forno]

Dow Plunges 998 Before Paring Losses

By Michael P. Regan and Rita Nazareth - May 06, 2010

http://preview.bloomberg.com/news/2010-05-06/bonds-decline-spanish-borrowing-costs-jump-as-ecb-meets-stocks-advance.html

U.S. stocks tumbled the most in a year on concern Europe’s debt crisis will halt the global recovery. The selloff briefly erased more than $1 trillion in market value as the Dow Jones Industrial Average fell almost 1,000 points, its biggest intraday loss since 1987, before paring the drop.

The Dow average ended down 347.8 points, or 3.2 percent, at 10,520.32 at the 4 p.m. close of trading in New York. The Standard & Poor’s 500 Index fell as much as 8.6 percent, its biggest plunge since December 2008, before ending at 1,128.15, down 3.2 percent. It was the biggest drop on a closing basis since April 20, 2009, for both measures.

“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”

New York Stock Exchange spokesman Rich Adamonis said “there were a number of erroneous trades” during the plunge. The NYSE told CNBC that there were no system errors as speculation of bad trades swirled through the market. The Nasdaq OMX Group Inc. said it is working with other markets to review transactions during the plunge.

Citigroup Inc. said it found “no evidence” of erroneous trades after CNBC said the bank made a potentially bad transaction that triggered the slide. CNBC cited “multiple sources.”

Procter & Gamble Co. said it’s looking into electronic trading of its stock to determine whether it was made in error. Its shares sank as much as 37 percent and closed down 2.3 percent.

Euro Tumbles

The euro tumbled the most since the collapse of credit markets in 2008, dropping 1.5 percent to $1.2623 and touching a 14-month low of $1.2529, even as Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion euro ($139 billion) bailout.

European Central Bank President Jean-Claude Trichet held interest rates at a record low of 1 percent today and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures.

“The ECB can fix this instantly by doing what the Fed has done -- instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $18 billion. “The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets.”

2010 Gains Wiped Out

The MSCI Asia Pacific Index joined the MSCI World Index and the Stoxx 600 Index in wiping out its advance for 2010. The Dow and S&P 500 briefly erased their yearly gains before paring losses.

Bank of America Corp., Hewlett-Packard Co. and American Express Co. tumbled more than 4.5 percent to lead declines in the 30-stock Dow as all 30 of its companies dropped at least 1.6 percent.

General Electric Co., the world’s biggest maker of jet engines, power-generation equipment and locomotives, fell as much as 17 percent before ending down 4.4 percent. Apple Inc. tumbled as much as 22 percent, the most since 2000, and ended down 3.8 percent.

Technology stocks and industrial companies in the S&P 500 had the biggest intraday declines on record, losing as much as 10 percent and 11 percent, respectively, in intraday trading. Both groups ended down less than 4 percent.

VIX Surges

The benchmark index for U.S. stock options surged as much as 63 percent, the most since February 2007, to 40.7 before paring its advance to 32 percent and closing at an almost one- year high of 32.8. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500.

About 19.3 billion shares changed hands on U.S. exchanges, the most since October 2008 and more than double 2010 average. Almost 10 stocks fell for every two that rose on U.S. exchanges

The MSCI World Index of stocks in 23 developed nations sank 2.8 percent and has plunged 6.4 percent of the past three days, its biggest retreat since in 14 months.

Yields on benchmark 10-year Treasury notes plunged 16 basis points to 3.377 percent on demand for assets considered the most safe. The Dollar Index, which measures the currency against six major trading partners, jumped as much as 1.4 percent.

European Bonds

Bonds of debt-laden European nations tumbled. The yield on Spain’s 10-year note surged 24 basis points, or 0.24 percentage point, to 4.42 percent, the highest since June. Italy’s 10-year yield jumped 22 basis points to 4.27 percent.

The 10-year Greek bond yield surged 1.14 percentage points to 11.31 percent, the highest in Bloomberg data going back to 1998. The nation’s two-year debt surged 1.46 percentage points to 16.36 percent, a record in Bloomberg data.

German bunds gained, sending the yield premium investors demand to own Greek and Spanish 10-year debt to records.

A 110 billion-euro ($140 billion) aid package to avoid a default by Greece has failed to prevent bond yields from rising, driving up borrowing costs for countries including Spain and Portugal. Sovereign debt contagion may spread across Europe, affecting the banking systems of Portugal, Spain and Italy, as well as Greece, Moody’s Investors Service said in a report.

‘All About Europe’

“It’s all about Europe,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “There’s a perception that what’s going on in Europe will be dragging the region back into a recession. The question is how much of that is going to be contagious to the rest of the world.”

Spain paid the highest yield since 2008 to sell five-year bonds. The Treasury sold 2.35 billion euros of the notes in an auction in Madrid to yield 3.532 percent. That was 0.716 percentage point more than it paid on similar securities in the most recent sale, nine weeks ago.

Prime Minister Jose Luis Rodriguez Zapatero this week railed at investors who dumped Spanish bonds on concern that the rescue plan for Greece may not insulate other euro-region governments from the crisis. The premier is trying to reduce a budget deficit that’s almost four times the European Union’s limit and regain the confidence of fund managers.

ECB President Jean-Claude Trichet resisted pressure from investors to take new steps to fight the euro-area’s spreading fiscal crisis.

‘Decisive Actions’

“We call for decisive actions by governments to achieving a lasting and credible consolidation of public finances,” Trichet told reporters today after the ECB’s Governing Council met in Lisbon. Spain and Portugal are “not Greece,” he said.

Turmoil in financial markets also battered the market for initial public offerings.

Ron Burkle’s Americold Realty Trust postponed the largest U.S. initial public offering of 2010, while Hong Kong’s Swire Properties Ltd. shelved its sale as the biggest stock-market slump in a year roiled IPOs.

Americold, the warehouse operator owned by Burkle’s Yucaipa Cos., pulled its $660 million sale after slashing the midpoint price by 33 percent yesterday, according to Bloomberg data and a filing with the Securities and Exchange Commission.

Swire Properties, landlord to Time Warner Inc. in Hong Kong, dropped its plan to raise as much as HK$20.8 billion ($2.7 billion). Smile Brands Group Inc., the Santa Ana, California- based provider of support services to dental groups, also shelved its $132 million IPO today.

Crude oil fell to an 11-week low in New York, retreating 3.6 percent to $77.11 a barrel.

Gold rallied 2.6 percent to top $1,200 an ounce, approaching a record.

To contact the reporters on this story: Michael P. Regan in New York at Mregan12 at bloomberg.net; Rita Nazareth in New York at rnazareth at bloomberg.net.