Report : U.S. stocks drop on Europe worries

 

NEW YORK (MarketWatch) 

U.S. stocks on Tuesday retreated after three sessions of gains, as Germany and France rejected the notion of selling common European bonds and suggested a financial-transaction tax.

The Dow Jones Industrial Average closed down 76.97 points, or 0.7%, to 11,405.93, stepping back after its biggest three-day percentage gain since March 2009.

Bank of America Corp. shares, off 4.6%, led losses among 26 of the index’s 30 components.
Stocks fell to session lows, with the Dow off as much as 190 points, after French President Nicolas Sarkozy said France and Germany would propose a financial-transaction tax next month, according to media reports.
Sarkozy had met with German Chancellor Angela Merkel for a summit on strengthening regional economic policies, but the meeting failed to produce solutions recently floated in financial markets — such as issuing eurobonds to fund struggling members like Italy and Spain.
 “The shorter-term market implications of today’s political announcements are predominantly negative,” wrote Barclays Capital analyst Frank Engels.
Besides the tax, there was disappointment that the two leaders did not support expanding the European bailout fund and that “the introduction of eurobonds as a joint funding tool of euro-area member countries did not feature high, if at all, on today’s summit agenda,” he wrote.
The currency markets are becalmed, but the increasingly familiar chaos could easily return as Merkel and Sarkozy talk about euro-zone issues and Swiss franc talk runs ahead of itself.
 Banks and exchange operators fell sharply after the summit’s press conference.
Leading decliners among the S&P 500 Index were shares of European exchange operator NYSE Euronext , off 9.6%.
The S&P 500 shed 11.73 points, or 1%, to 1,192.76, with financials falling hardest among its 10 major sectors.
Earnings results from some large U.S. retailers helped limit losses.
Discount retailer Wal-Mart Stores Inc. hiked its 2011 profit outlook, with shares of the Dow component up 3.9%.
Also bolstering the blue-chip index, Home Depot Inc. rose 5.3% after the home-improvement retailer raised its yearly profit forecast as second-quarter earnings topped expectations.
The Nasdaq Composite Index lost 31.75 points, or 1.2%, to 2,523.45.
 Losses also had been tempered as Fitch Ratings reaffirmed the U.S. triple-A credit rating and said the outlook is stable, pointing to the country’s role in the global economy and its multifaceted economy.
The ratings agency had put the rating under review in the wake of the Aug. 2 debt-limit deal that averted default.
For every stock rising, three fell on the New York Stock Exchange, where 1.1 billion shares traded hands. Ahead of the opening bell, Germany’s statistics institute said economic growth edged up 0.1% in the April-June quarter from the previous three months, marking a sharp slowdown.
Stocks trimmed losses after a Federal Reserve report showed industrial production gained in July by the most this year, up 0.9% after a revised 0.4% rise that was better than had been estimated.