Banks drag Wall Street lower as fear returns

S&P 500 declines 4% over fears Europe debt crisis will cause French banks collapse, spill over into US financial sector.

By REUTERS
August 10, 2011 23:43
2 minute read.
Wall Street

Wall Street_311. (photo credit: Thinkstock/Imagebank)

 
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NEW YORK - Fear returned to Wall Street on Wednesday, sending the S&P 500 to another 4 percent decline, triggered by worries that Europe's debt crisis could engulf French banks and spill onto the US financial sector.

Trading was once again marked by sharp moves on heavy volume. For a fifth straight day, the Dow industrials fluctuated in a range of more than 400 points.

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"What you're seeing is a very short-term, direction-oriented market," said Eric Kuby, chief investment officer of North Star Investment Management Corp in Chicago.

The Dow Jones industrial average slid 520.29 points, or 4.63 percent, to 10,719.48. The S&P 500 fell 51.81 points, or 4.42 percent, to 1,120.72. The Nasdaq Composite dropped 101.47 points, or 4.09 percent, to 2,381.05.

Worries about the strength of French lenders, including Societe Generale, triggered a selloff in European and U.S. banks. Rumors about SocGen's financial health, which the bank denied, sent its shares tumbling 14.7 percent.

An index of European banks dropped 6.7 percent and the KBW index of U.S. bank stocks slid 4.9 percent as fear grew of a possible contagion of any French crisis. Bank of America Corp lost 10.9 percent to $6.77 and Goldman Sachs slid more than 10 percent to $110.34.



Wednesday's drop came a day after stocks rallied on the Federal Reserve's pledge to keep interest rates near zero for at least two more years.

Even after Tuesday's snap-back, the S&P 500 is down almost 18 percent from its 2011 closing high set April 29.

The losses came against the backdrop of recent weak U.S. economic data, the United States losing its triple-A credit rating from Standard & Poor's and the inability of lawmakers to address worries that another recession may be on the way.

Dow component Walt Disney Co dropped 9.1 percent to $31.54 a day after the entertainment company's quarterly results failed to reassure investors that it could do well in a weak U.S. economy.

About 14.8 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, almost double the year's estimated daily average of 7.8 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of more than 8 to 3, while on the Nasdaq, almost five stocks fell for every one that rose.

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