Stocks fall on concern about Europe

Posted May 23, 2011, at 10:38 p.m.

NEW YORK — Stocks retreated Monday, giving the Standard & Poor’s 500 Index its biggest drop in two months, as commodities slumped amid concern that Europe’s debt crisis is worsening and the global economic recovery is losing momentum.

The S&P 500 retreated 1.2 percent, the most since March 16, to 1,317.37, its lowest level in a month. The Dow Jones Industrial Average decreased 130.78 points, or 1.1 percent, to 12,381.26.

“We see the markets move towards de-risking as investors are concerned about the continued sovereign risks in Europe coupled with new fears that global economic growth has peaked,” said Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, N.Y.

The S&P 500 climbed to an almost three-year high on the final trading day of April. It has slumped 3.4 percent from then as economic data missed economists’ estimates and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program, known as quantitative easing or “QE,” at the end of June. Still, the benchmark has rallied 4.8 percent from the end of 2010 amid government stimulus measures and higher-than-estimated earnings.

Monday’s decline dragged the S&P 500 below its average level from the past 50 days, which may signal more losses to investors whose decisions are influenced by chart patterns. The index hadn’t closed below its 50-day moving average, currently at about 1,325.6, in more than a month.

The Federal Reserve Bank of Chicago’s gauge of economic activity unexpectedly dropped below zero in April. The national index, which draws on 85 economic indicators, was minus 0.45 in April versus 0.32 in March. A reading below zero indicates below-trend-growth in the national economy and a sign of easing pressures on future inflation.

Global stocks slumped Monday amid growing concern that Europe’s debt crisis is worsening and the economic rebound is slowing. Spanish Prime Minister Jose Luis Rodriguez Zapatero’s Socialist party suffered its worst defeat in more than 30 years in local elections amid a backlash over austerity measures. Italy’s credit-rating outlook was revised to negative from stable by S&P on May 20. Data showed China’s manufacturing may expand at a slower pace this month.

The advance since the S&P 500’s 2011 bottom on March 16 has been led by companies whose earnings are least dependent on economic growth. Health-care stocks such as Johnson & Johnson have the biggest increase among 10 industries at 13 percent. The household-product group including Procter & Gamble Co. climbed 12 percent, phone companies like AT&T Inc. gained 11 percent and utilities such as Southern Co. rallied 10 percent.

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