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European financial gloom slams U.S. stock markets

NEW YORK — Stocks buckled Thursday under the growing belief that the global economy is weaker than many investors expected and is likely to stop companies from hiring. The Dow Jones industrials briefly traded below 10,000 for the first time in three months.

A flood of bad news, including rising debt levels in European nations and an unexpected jump in the number of Americans filing for unemployment benefits, had investors pulling money out of assets like stocks and commodities that look increasingly risky. Fears of more disappointing news today, when the government issues its January employment report, contributed to the slide.

The Dow fell 268.37, or 2.6 percent, to 10,002.18. The Dow has fallen 723 points, or 6.7 percent, since closing at a 15-month high of 10,725.43 on Jan. 19.

The broader Standard & Poor's 500 index fell 34.17, or 3.1 percent, to 1,063.11, its steepest drop since April 20. And the Nasdaq composite index slid 65.48, or 3 percent, to 2,125.43.

The day's news reminded investors that the global economic recovery remains tenuous. It also raised questions about whether the market can resume its rebound from 12-year lows it hit in March.

The market's slide began in Europe on concerns about onerous debt levels in Greece, Portugal and Spain. Worries about those countries set off broader concerns that governments will have difficulty containing rising debts and borrowing more money to help revive their economies.

"The market is becoming aware that the wall of cash that lifted it last year is coming to an end," said Jon Merriman, chief executive of Merriman Curhan Ford in San Francisco.

The euro hit a seven-month low against the dollar on the news. The rising dollar hurt demand for commodities, which are priced in dollars and become more expensive to foreign buyers when the dollar climbs. Gold tumbled $49, or 4.4 percent.

Investors also worry that a slowdown in foreign countries would spill over to the United States and make it harder for the economy to overcome its biggest problem: unemployment.

The Labor Department said Thursday that claims for unemployment benefits rose 8,000 to 480,000 last week. The news disappointed investors who had hoped for a drop. It was the fourth increase in the past five weeks.

"You've got the recipe for a market in which my screen is entirely red," said Bernie McSherry, senior vice president of strategic initiatives at Cuttone & Co. in New York.

Charles Norton, portfolio manager of the ALPS/GNI Long-Short Fund, said the renewed questions about foreign governments' ability to finance their deficits are a sign that investors have been too optimistic in predicting a recovery in the world's economies.

Norton said signs of improvement in the U.S. economy are less impressive than they first appear. The government said last week that the economy grew at an annual rate of 5.7 percent during the fourth quarter. A big part of that gain came from companies rebuilding inventories.

"They are the only sources of economic activity that we've seen so far," Norton said. "They're both likely to wane over the course of this year. Then what's left?"

By the numbers

2.6 Percentage drop by the Dow on Thursday, as it fell 268.37 to close at 10,002.18.

6.7 Percentage the Dow has dropped since closing at a 15-month high of 10,725.43 Jan. 19, a fall of 723 points.

European financial gloom slams U.S. stock markets 02/04/10 [Last modified: Thursday, February 4, 2010 10:58pm]
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