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US markets fall while European markets mixed

02 September 2009 09:40 (UTC +04:00)

Baku- APA-Economics. The stock market’s six-month rally finally gave way Tuesday, succumbing to resurgent worries about the fragility of the banking industry and the economy as a whole.
A mix of rumors and growing concerns that more banks will fail pummeled the financial industry, which had posted some of the biggest gains since the stock market began its huge advance in March. Investors saw a batch of economic reports that just weren’t good enough as a parallel reason to sell.
All the major indexes fell more than 1.5 percent, including the Dow Jones industrials, which lost about 170 points. Meanwhile, bond prices edged higher as investors sought the safety of government debt. The price of oil tumbled as the dollar strengthened and amid concerns that the economy isn’t strong enough to support higher demand for energy.
Analysts said there were other forces at work in the market, including lingering concerns about the Chinese economy, whose problems would affect the rest of the world. And investors, cognizant of the market’s tendency to sag in September, also seized upon that to justify pulling money out of stocks.
Banks and insurance companies were the most notable losers, but they also had been pumped up the most in a rally that lifted the market more than 50 percent since hitting 12-year lows in March.
Traders said rumors were making the rounds in the market. But with the government reporting last week that 400 banks were in trouble during the second quarter, investors’ anxiety about the health of the financial industry is heightened.
Investors are also hesitant to buy stocks ahead of Friday’s employment numbers, which could reveal more bad news about the job market, one of the worst remaining problem areas in the U.S. economy.
In late afternoon trading, the Dow dropped 170.11, or 1.8 percent, to 9,326.17. The Standard & Poor’s 500 index fell 19.52, or 1.9 percent, to 1,001.10, while the Nasdaq composite index fell 35.07, or 1.8 percent, to 1,973.99.
Nearly five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares compared with a light 675.8 million shares traded at the same time Monday. Volume has been light as some traders break away for vacation before Labor Day. That can leave the market vulnerable to big swings.
In other trading, the Russell 2000 index of smaller companies fell 12.13, or 2.1 percent, to 559.94.
Bond prices turned mostly higher after stocks began to fall and investors went in search of safer assets. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.38 percent from 3.40 percent late Monday.
Light, sweet crude for October delivery tumbled $1.82 to $68.14 a barrel on the New York Mercantile Exchange, bringing down shares of energy companies with it. Gold prices fell.
Although the market pulled back in recent days, stocks managed to put in their best August since 2000. September, however, is historically the worst month for stocks.
"It’s a self-fulfilling prophecy," said Steve Stahler, president of The Stahler Group in Baton Rouge, La., of investors entering the month knowing it’s typically weak.
Stahler added that there are no longer indicators on the horizon that can continue to propel the market forward at such a dizzying pace.
"We’ve had a heck of a run," Stahler said. "When has that type of gain been sustainable? It never has."
The reaction to the day’s economic reports signaled that many traders are more concerned about how much stocks have rallied.
The Institute for Supply Management said Tuesday that its index of manufacturing activity rose to 52.9 in August, up from 48.9 in July and well above the reading of 50.5 analysts had been expecting. A reading above 50 signifies growth in the industry â€” something that hasn’t happened since January 2008.
Meanwhile, the National Association of Realtors said its index of pending U.S. home sales rose 3.2 percent in July to 97.6, more than the 96.5 forecast by analysts. It was the reading’s highest level in more than two years, helped by a surge of first-time buyers taking advantage of a tax credit that expires this fall.
It was the sixth straight increase and 12 percent above the same month last year.
Overseas, Japan’s Nikkei stock average rose 0.4 percent. Britain’s FTSE 100 dropped 1.8 percent, while Germany’s DAX index tumbled 2.5 percent and France’s CAC-40 fell 1.9 percent.
China’s Shanghai Composite Index rose 0.6 percent after a 6.7 percent plunge on Monday that sent a wave of selling around the globe. Source: AP