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Monday, July 23, 2012

Dow taking cue from strong sell-off in Europe

NEW YORK — Fear over European debt surged Monday and drove stocks sharply lower around the world. The Dow Jones industrial average plunged almost more than 200 points before recovering after an hour of trading.
The price of crude oil dropped more than $3 per barrel to below $90, and yields for U.S. government bonds sank to record lows, a sign that traders were seeking the safety of American debt.

The euro hit a two-year low against the U.S. dollar.
Borrowing costs rose sharply for Spain and Italy, a signal of renewed investor worries that the Spanish government will need an international bailout.
In the United States, the Dow was down as much as 239 points shortly after the opening but started rising after about an hour of trading. At 11 a.m. EDT, it was off 133 points at 12,690. The Dow has had only seven declines of 150 points or more this year, including its worst, a 274-point drop on June 1.
The Standard & Poor’s 500 index fell 18 points to 1,345, and the Nasdaq composite index plunged 54 points to 2,871.
The selling was widespread. By 11 a.m., only a dozen stocks in the S&P 500 were higher for the day.
The Bank of Spain said the Spanish economy contracted by a quarterly rate of 0.4 percent in the second quarter. Falling economic output makes it even more difficult for Spain to deal with its debts.
An eastern region of Spain said last week that it would need a bailout from the government in Madrid, and a southern region said over the weekend that it might also need help.
Spain’s market regulator said it was temporarily banning short-selling of shares on its stock indexes. In a short sale, an investor seeks a profit by betting that the price of a certain stock will fall.
Strong selling rattled European markets. The main stock index dropped more than 7 percent in Greece, 1 percent in Spain, 3 percent in Germany and France. Asian stocks were also sharply lower.
Bank stocks, which tend to take a hit when fear flares in Europe, were among the biggest losers. Citigroup stock dropped more than 2 percent and Bank of America 1.3 percent.
Energy stocks were almost among the worst performers, following the price of oil lower. Exxon Mobil declined $1.06, or 1.2 percent, to $84.90.
The euro slipped just below $1.21 against the dollar, its lowest reading since June 2010.
There were also signs that a global economic slowdown is hitting U.S. companies that rode out the recession fairly well, largely because currencies overseas have tumbled against the dollar.
While global sales at McDonald’s restaurants open at least a year rose 3.7 percent, profits slid by about the same rates due to currency exchange. McDonald’s generates about two-thirds of its revenue outside the U.S.
“A disproportionately large amount of revenue overseas is seen as a negative today,” said Lawrence Creatura, a portfolio manager at Federated Investors, a mutual fund firm. “The list of weakening overseas markets is getting longer by the day.”
Stock in the world’s largest hamburger chain slid 2 percent after the company fell short of most Wall Street expectations for both net income and revenue.
At Hasbro, the toy company, said international revenue in the second quarter fell 4 percent. Taking out the impact of the stronger dollar, however, international revenue gained 5 percent. But the company, whose products include Monopoly and Scrabble, beat analyst estimate of net income, thanks partly to cost cutting. Its stock rose $1,25, or 3.7 percent, to $35.11.
A forecast from a Chinese central bank adviser that China’s economy could grow at a slower pace in the third quarter deepened concerns about the global slowdown.
One big winner so far is RailAmerica Inc., a short-line railroad operator. It rose nearly 10 percent to $27.24 after announcing that it had agreed to be bought by another short-line operator, Genessee & Wyoming, for $1.39 billion in cash.

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