Dow tumbles 280 points amid economic fears
PAMELA SAMPSON, AP Business Writer Thursday, June 2, 2011
NEW YORK -- Fears that the economy is stalling sent the Dow Jones industrial average down 280 points Wednesday, erasing more than a quarter of the stock market's gains for the year. Treasury bond yields fell to their lowest level since December as traders put a higher value on safer investments.
The Dow Jones industrial average dropped 279.65 points, the biggest point drop since June 4 of last year, and the largest percentage drop since August. The S&P index lost 30.65, or 2.3 percent, to 1,314.55. The Nasdaq composite fell 66.11, or 2.3 percent, to 2,769.19.
The yield on the benchmark 10-year Treasury note fell to 2.95 percent. Bond yields fall when prices rise.
Doubts about the economy's strength that built in May were compounded by weaker-than-expected reports on manufacturing and jobs. The poor reports, plus a decline in automobile sales in May, led several economists to lower their expectations for the year. JP Morgan was among a handful of investment banks that lowered its estimate for gross-domestic-product growth in the second quarter to 2 percent. The downgrade followed one the bank issued last week. The Dow was down nearly 180 points in midday trading and lost 100 more points after noon as asset management firms sent notes to their clients announcing their economic revisions.
The latest reports on retail sales, first-time applications for unemployment benefits and factory orders will be released today, and analysts say any additional signs of economic weakness could push the market even lower.
On the heels of those readings, the Labor Department's more comprehensive jobs report, which includes hiring by both private employers and the government, will be released Friday. Analysts already are expecting those figures to be worse than they anticipated just a few weeks ago.
Still-high gas prices, a continued housing-market decline, weaker-than-expected GDP and tepid consumer confidence -- along with concerns about debt problems in Europe and the debt ceiling in the U.S. -- have weighed on markets.
More evidence the U.S. economy has hit a soft patch and political uncertainty in disaster-hobbled Japan sent world stock markets sharply lower Thursday.
Oil prices fell below $100 a barrel after a report showed an unexpected jump in U.S. crude supplies, suggesting demand is weakening. The dollar weakened against the euro and the yen.
Markets were down in early European trading. Britain's FTSE 100 was 0.9 percent down at 5,872.96, while Germany's DAX slid 1.2 percent 7,129.62. In Paris, the CAC-40 was 1.3 percent lower at 3,912.37.
"I think right now there's almost a market consensus of the slowing down of economic growth around the world," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.
Recent data shows first-quarter GDP drops in India and the Philippines and a slowdown in Chinese manufacturing growth, he said. Those indications come on top of a recession in Japan sparked by March's earthquake and a debt crisis in smaller European nations that threatens to infect the region's larger economies.
Japan's Nikkei 225 fell 1.7 percent to close at 9,555.04, as a leadership crisis hurt investor confidence. Prime Minister Naoto Kan, who defeated a a no-confidence vote in parliament Thursday, told members of his deeply divided party that he feels it is his duty to carry on leading the recovery from a massive earthquake and tsunami on March 11 but would consider resigning once efforts begin to take hold.
Kan has been criticized for delays in construction of temporary housing for evacuees from the March 11 disaster, lack of transparency about evacuation information, and a perceived lack of leadership.
South Korea's Kospi index was down 1.3 percent at 2,114.20, a day after the government reported that the country's consumer price index rose 4.1 percent from a year earlier. The rate has been above 4 percent for five straight months, which is outside the Bank of Korea's so-called tolerance range for consumer price inflation.
Australia's S&P/ASX 200 index shed 2.3 percent to 4,600.40, with mining shares hit hard by expectations of weaker worldwide demand. BHP Billiton, the world's largest mining company, lost 2.2 percent. Rival Rio Tinto fell 1.8 percent. Energy Resources of Australia Ltd. toppled 2.7 percent.
Hong Kong's Hang Seng index fell 1.6 percent to 23,253.84. CNOOC, or China National Offshore Oil Corp., sank 2.2 percent amid falling oil prices. PetroChina Ltd., the publicly traded unit of China's biggest oil and gas company, lost 2.1 percent.
Chinese banking shares also stumbled. Agricultural Bank of China Ltd. plunged 4.1 percent, and China Merchants Bank slid 3.4 percent.
Shares in mainland China dropped, with the benchmark Shanghai Composite Index sinking 1.4 percent to 2,705.18 after dipping 2.4 percent earlier in the day. The Shenzhen Composite Index of China's smaller, second exchange lost 1.5 percent to 1,105.95.
"A correction may be taking place. Concerns over negative information such as slow economic growth and inflation are making investors gloomy," said Yang Yining, an analyst at Capital-edge Investment & Management Co., Ltd, based in Shanghai.
Doubts about the U.S. economy's strength were compounded Wednesday by weaker-than-expected reports on manufacturing and jobs. Any slowdown in the U.S. economy, the world's largest, will ripple around the globe and hurt exporters in the many nations that rely on America as a key market.
The only good sign following all the bad news was that "we did not see panic selling," said Tey Tze Ming, a manager with Saxo Capital Markets in Singapore.
The Institute for Supply Management's manufacturing index fell to 53.5 in May from 60.4 in April. A reading of more than 50 indicates the manufacturing industry is growing, but the index had been as high as 61.4 in February. Private employers added just 38,000 jobs in May, down from 177,000 in April, according to payroll processor ADP. Analysts had expected 180,000 new jobs.
The Dow Jones industrial average dropped or 2.2 percent to 12,290.14. The S&P index lost 2.3 percent to 1,314.55. The Nasdaq composite fell 2.3 percent to 2,769.19.