Stocks fell sharply on Wall Street on Thursday after the European Central Bank appeared to dampen expectations for an expanded bond-buying program and as leaders gathered for a summmit meeting in Brussels aimed at resolving the sovereign debt crisis in Europe.
The E.C.B cut its benchmark interest rate for the second month in a row and expanded the emergency funding it provides to cash-starved banks.
But Mario Draghi, president of the central bank, indicated in a news conference that he was cautious about future bond purchases. Yields on Italian and Spanish bonds rose sharply after his remarks and stocks declined in Europe and then on Wall Street.
Analysts said that investors appeared to be disappointed by M. Draghi’s remarks, in which he said he was “surprised” his recent comments were seen as a sign that the E.C.B. would buy more bonds if political leaders delivered tougher rules on budgetary discipline.
Anthony Valeri, an investment strategist in fixed income at LPL Financial, said that Mr. Draghi was “keeping his powder dry for when he really needs it.”
“It puts more pressure on the summit to deliver something tangible,” said Mr. Valeri.
While markets traded lower for most of the day, the decline accelerated at the end of the session. At 4 p.m., the Dow Jones industrial average was down 1.6 percent after a 0.4 percent rise on Wednesday. The Standard Poor’s 500-stock index slipped 2.1 percent, and the Nasdaq composite index was down 2 percent. Financial stocks fell the most, down nearly 4 percent.
European stocks closed even lower, with the Euro Stoxx 50 down 2.4 percent.
At their two-day summit meeting, European leaders are expected to consider proposals for tougher fiscal rules from the German chancellor, Angela Merkel, and President Nicolas Sarkozy of France. The leaders were gathered for a dinner on Thursday before the main part of their agenda on Friday.
José Manuel Barroso, the president of the European Commission, sought to instill confidence that a solution would be found, saying early Thursday: “I believe this is possible,” according to The Associated Press.
“My appeal — my strong appeal — to all the heads of state and government is to show this commitment to our common currency,” Mr. Barroso said. “I think this is indispensable, and leadership is about making possible what is indispensable.”
Mr. Barroso was in Marseille along with Mr. Sarkozy and Mrs. Merkel for a meeting of the European People’s Party, the conservative bloc in the European Parliament, before their departure for Brussels.
Laura LaRosa, the director of fixed income for Glenmede, said that United States Treasury prices rebounded as investors’ appetite returned for assets seen as safer. On 10-year Treasuries, the yield, which moves opposite to the price, was at 1.969percent, down 6 basis points.
“I think what you are going to see tomorrow is going to be another day where there is a tremendous amount of anticipation,” she said.
Tim Courtney, chief investment officer of Burns Advisory Group, said that with the euro zone debt crisis a concern for investors for some time, expectations for a solution were already low and priced in to the markets.
Late Wednesday, Standard Poor’s said that it was putting the credit ratings of the entire 27-nation European Union on watch for a possible cut from its top AAA rating, citing “concerns about the potential impact on these member states of what we view as deepening political, financial, and monetary problems within the euro zone.”
The action, of mainly technical interest since the bloc itself does not issue debt on a large scale, came after the agency on Monday put 15 of the 17 euro member nations on watch for downgrade, meaning all of the euro zone countries face ratings cuts — and potentially higher borrowing costs — if the crisis meetings fail.
“A bit of pressure is not unwelcome,” Jean-Claude Juncker, the Luxembourg prime minister who acts as head of the Eurogroup, said on French radio regarding the S.P. action, according to Reuters. Still, he said, “the pressure would have existed even if there hadn’t been these warnings from the agencies.”
In its second monetary easing in just five weeks, the European Central Bank cut its main overnight rate by a quarter of a percentage point, to 1 percent. The Bank of England’s Monetary Policy Committee, which also met Thursday, left the main British overnight rate unchanged at 0.5 percent.
Stocks in Europe closed lower across the board. The FTSE 100 index in London lost 1.1 percent, the CAC 40 index in Paris was down 2.5 percent and the DAX in Frankfurt was 2 percent lower.
The euro rose after the central bank lowered its interest rate, but then slumped. It was trading at $1.3363 from $1.3412 late Wednesday in New York.
Yields on Italian and Spanish bonds rose sharply after Mr. Draghi’s remarks. At the end of the session, the yield on 10-year Italian bonds climbed 47 basis points to 6.429 percent, and the Spanish yields advanced 39 basis points to 5.75 percent.
German 10-year bonds yields were 2.01 percent, down 9 basis points. A basis point is one-hundredth of a percent.
Asian shares declined. The Tokyo benchmark Nikkei 225 stock average fell 0.7 percent. The Sydney market index S.P./ASX 200 fell 0.3 percent. InHong Kong, the Hang Seng index fell 0.7 percent and in Shanghai the composite index fell 0.1 percent.
Article source: http://www.nytimes.com/2011/12/09/business/global/daily-stock-market-activity.html?partner=rss&emc=rss
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