Stocks fall on Wall Street as Spanish bank teeters

By CHRISTINA REXRODE, AP Business Writer – 28 minutes ago 

NEW YORK (AP) — Another flare-up in Europe's debt crisis knocked U.S. markets lower Friday. This time, it was more trouble at a major Spanish bank.

Stock indexes were waffling between small gains and losses until news broke in the afternoon that Bankia, a hobbled Spanish lender, asked that country's government for $23.8 billion in support. Earlier in the day, Standard & Poor's cut the bank's credit rating to junk status because of deepening uncertainty over its restructuring plans.

The Dow Jones industrial average dropped as much as 108 points before closing at 12,454.83, down 74.92 points. Concerns about Europe have sent the Dow on a steady slide this month, erasing most of its gains from the first quarter. It finished the week slightly higher, its first weekly gain for May.

The declines were broad. Eight of the 10 industry groups in the Standard & Poor's 500 index fell. The only sectors that rose were utilities and telecommunications, which investors tend to buy when they're skittish about the market. Trading volume was light ahead of the Memorial Day holiday.

Facebook, marking its one-week anniversary as a public company, fell 3.4 percent to $31.91. Talbots, the women's clothing chain, plunged 41 percent to $1.51 after announcing that a deadline expired without a deal to be bought by Sycamore Partners.

In addition to the new worries about Spain, the head of Germany's central bank, which has been skeptical of bailing out Greece and other weak European countries, reinforced the point when he said it was an "illusion" to think allowing euro zone countries to borrow money jointly would solve the crisis. The Portuguese parliament endorsed a budget plan that would set legal limits on government spending.

In Asia, media reports suggested that some of China's biggest banks will miss their annual lending targets for the first time in seven years, and Taiwan lowered its economic growth forecast for the year. Caterpillar, which relies heavily on demand from China, fell 1 percent.

In other trading, the Standard & Poor's 500 index fell 2.86 points to 1,317.82. The Nasdaq composite fell 1.85 points to 2,837.53.

Stock indexes in France, Britain, Germany and Spain rose, while Greece's ATHEX plunged 3.5 percent. Borrowing rates edged higher for Spain and Italy.

Greece's June 17 elections are an overhang on the market. The results will determine if Greece agrees to the spending cuts that it must swallow if it wants to stay in the 17-country euro zone, or if it goes its own way.

The idea of cutting government spending is unpopular in a country where residents have grown used to public-sector largesse. But if Greece left the euro zone, it would have to revert to its own currency. That would be severely devalued, and the country's standard of living would probably be crushed.

Greece makes up just 2 percent of the euro zone economy, but its fate would carry ripple effects to other, larger members. Unnerved traders could dump the bonds of other struggling European countries, such as Spain and Italy. Residents could start to pull money out of banks there, as has been happening in Greece.

The standoffs so far have almost always lasted until the 11th hour.

"Every time you think it's going to fall off a cliff and end very badly, something happens," said Beata Kirr, senior portfolio manager at Bernstein Global Wealth Management in Chicago. "The European Central Bank steps in to buy Italian and Spanish bonds. Or Germany softens its stance on austerity. All of these things have happened when it's past the precipice."

Copyright © 2012 The Associated Press. All rights reserved.

Hewlett-Packard on Wednesday, as expected, said it would cut its work force to save as much as $3.5 billion a year. The number of job cuts was a little lower than anticipated - 27,000 jobs, rather than the 30,000 company executives had estimated last week, reports the New York Times.

On Wednesday, H.P. (NYSE: HPQ) reported revenue and net income below year-earlier levels, but exceeded Wall Street’s expectations, the paper said.

The reduction in employees represents a 7.7 percent cut in the company’s global work force of 349,600, the NYT reported.

The NYT said H.P. would apply most of the savings from the job cuts “toward cloud-based businesses, like computer security and analysis of large data troves.”

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U.S. stock futures fell as the Congressional Budget Office said America’s economy would slip into recession if necessary budget measures aren’t taken and concern mounted that Greece will leave the euro area.

Dell Inc. (DELL) plunged 13 percent in German trading after the company forecast fiscal second-quarter revenue that missed analysts’ estimates. Morgan Stanley (MS) dropped after a Massachusetts regulator subpoenaed the investment bank over its handling of Facebook Inc. (FB)’s initial public offering.

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May 23 (Bloomberg) -- U.S. stock-index futures declined as European leaders prepared to meet in Brussels and data showed Japan’s exports grew slower than estimated. (Source: Bloomberg)

Standard & Poor’s 500 Index futures expiring in June declined 0.8 percent to 1,304.5 at 6:43 a.m. in New York. Dow Jones Industrial Average futures expiring the same month lost 90 points, or 0.7 percent, to 12,387.

“Uncertainty surrounding Greece’s membership in the euro and possible contagion into other countries plagued by high deficits just isn’t going away, at least not until Greek elections have taken place on June 17th,” said Markus Huber, head of German sales trading at ETX Capital in London.

Stocks erased gains in the final hour of trading yesterday after former Greek Prime Minister Lucas Papademos said while it is unlikely the Mediterranean nation will leave the euro, it remained a risk, the Wall Street Journal reported.

The leaders of the European Union meet in Brussels today to discuss the sovereign-debt crisis that has wiped about $4 trillion from equity markets worldwide this month.

Japan’s exports in April trailed economists’ estimates, underscoring the risk that weakness in global demand may limit the recovery in the world’s third-biggest economy. In Japan, exports grew 7.9 percent last month from a year earlier. That fell short of the median estimate for an 11.8 percent gain in a Bloomberg News survey.

‘Fiscal Cliff’

The U.S. economy will probably tip back into recession next year if Congress fails to address an impending “fiscal cliff,” the Congressional Budget Office said.

The nonpartisan agency said in a report yesterday that the economy would contract at an annual rate of 1.3 percent in the first half of 2013 if lawmakers allow the George W. Bush-era tax cuts to expire as scheduled and $1.2 trillion in government spending cuts to take effect in January.

Separately, a Commerce Department report at 10 a.m. in Washington may show that new-house sales in the U.S. rose to 335,000 in April from 328,000 in March, according to a Bloomberg survey of economists.

Dell, Morgan Stanley

Dell tumbled 13 percent to $13.14 in German trading. Round Rock, Texas-based Dell predicted sales for the period ending in July of $14.7 billion to $15 billion. That compared with the average $15.4 billion analyst estimate compiled by Bloomberg.

Hewlett-Packard Co. (HPQ) dropped 1.6 percent to $21.43 in Germany. The world’s largest personal-computer maker will report results today after the market closes.

Morgan Stanley fell 1.1 percent to $13.17 in Germany. The lead underwriter of Facebook’s IPO released a statement defending its handling of the share sale after the Massachusetts security division yesterday subpoenaed the investment bank over its communications with clients. The U.S. Securities and Exchange Commission and the brokerage industry’s watchdog both said they may review the offering.

Facebook slid 1.8 percent to $30.44 in early New York trading. The shares have plunged 18 percent over the three days since the second-largest IPO in U.S. history.

Analog Devices Inc. (ADI) fell 3.1 percent to $34.70 in late trading in New York. The company forecast third-quarter earnings-per-share of 54 cents to 58 cents. Analysts had estimated 58 cents.

PetSmart Inc. (PETM) surged 9.7 percent to $61 in late trading as the company beat first-quarter earnings estimates and increased its full-year forecast.

To contact the reporter on this story: Tom Stoukas in Athens at astoukas@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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