Posted by: Schuyler R. Thorpe | January 25, 2012

Stocks Sell Off Over US Debt Concerns

Selloff in fourth day on Europe, U.S. debt concerns

NEW YORK (Reuters) – U.S. stocks fell for a fourth session on Monday, as the lack of progress in dealing with heavy debt both in the United States and Europe further sapped investor confidence in equities.

Risky assets like commodities also fell, sparking a selloff in shares of industrials and energy companies. Volume was lower than average, with investors more inclined to sit on the sidelines amid the uncertainty.

“We’re seeing signs of worsening in Europe, worsening in our market here. There is no viable resolution to this,” said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.

The Dow Jones industrial average (DJI:^DJI) was down 248.85 points, or 2.11 percent, at 11,547.31. The Standard & Poor’s 500 Index  (SNP:^GSPC) was down 22.66 points, or 1.86 percent, at 1,192.99. The Nasdaq Composite Index (Nasdaq:^IXIC) was down 49.36 points, or 1.92 percent, at 2,523.14.

A special U.S. congressional committee was expected to concede failure to reach a deal after three months of talks to slash the deficit.

There are concerns the stalemate will make it more difficult to pass extensions of stimulative measures like payroll tax cuts, which could hurt the U.S. economy. In addition, investors are worried that the committee’s inability to come to an agreement could result in another downgrade of the U.S. credit rating, though so far the major ratings agencies have not commented.

Moody’s Investors Service said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for France’s credit rating.

Blue chips, which have been outperforming smaller cap stocks, fell the most. The Dow was off 0.3 percent for the year. The S&P and the Nasdaq have fallen about 5 percent.

The S&P quickly fell through the 1,200 level seen as the next level of support. After that support was seen at 1,187, representing the 61.8 percent retracement of the 2011 high to low slide.

Rick Bensignor, chief market strategist at Merlin Securities in New York, said the negative headlines from across the globe made it less likely the market would see a sustained rally despite stocks having what many traders say are attractive valuations.

“Cheap valuations only do so much. They don’t make bull markets, they make bidders to curtail down markets but in and of themselves, the fact that stocks are cheap is not a good enough reason to think that they are going to go higher.”

Among blue-chip stocks, Bank of America (NYSE:BAC) fell 5 percent to $5.49. On the Nasdaq, Inc (NasdaqGS:AMZN) shares lost 4 percent to $189.25.

After the closing bell, Hewlett-Packard’s (NYSE:HPQ) reported quarterly results that beat Wall Street’s expectations. The stock rose 2.4 percent to $27.50 in extended trade.

In Europe, the FTSEurofirst 300 (.FTEU3) index fell to its lowest close in nearly seven weeks. Along with the new
concerns about France, Spain’s bond yields rose despite a clear-cut victory for austerity-committed conservatives in Sunday’s election.

There were few details on Prime Minister-elect Mariano Rajoy’s plans.
About 7.6 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below the current daily average of 8 billion shares.

On the New York Stock Exchange, about six stocks fell for every one that rose. On the Nasdaq, decliners beat advancers by 5 to 1.

Merger activity provided a bright spot as Pharmasset Inc (NasdaqGS:VRUS) surged 84.6 percent to $134.14 after Gilead Sciences Inc (NasdaqGS:GILD) agreed to buy the company for $11 billion in cash. Gilead slumped 9.1 percent to $36.26.

Economic data showed U.S. existing-home sales unexpectedly rose in October as low interest rates for mortgages and rising rents encouraged more home buyers, a trade group said, but equities were little helped by the data.


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