U.S. Stocks Fall as European Yields Rise, Fitch Cites Bank Risk

U.S. stocks fell, sending the Standard & Poor’s 500 Index to its worst weekly loss in two months, as Spanish, French and Italian bond yields rose and Fitch Ratings said Europe’s debt crisis poses a threat to American banks.

Alcoa Inc. (AA), Chevron Corp. (CVX) and JPMorgan Chase & Co. (JPM) lost at least 8 percent to lead declines in the Dow Jones Industrial Average. (INDU) Sears Holdings Corp. (SHLD) fell 14 percent and Abercrombie & Fitch Co. (ANF) dropped 17 percent after the retailers’ quarterly results trailed forecasts. Marathon Petroleum Corp. and HollyFrontier Corp. plunged more than 13 percent on speculation refining profits will decline.

The S&P 500 decreased 3.8 percent, the most since the week ended Sept. 23, to 1,215.65. The index closed at the lowest level since Oct. 20. The Dow fell 357.52 points, or 2.9 percent, to 11,796.16.

“In the euro zone you’ve got this horrible crisis and it’s not clear to anyone how it is going to be solved,” George Feiger, chief executive officer of Contango Capital Advisors Inc., the San Francisco-based wealth management arm of Zions Bancorporation, which oversees about $3.3 billion, said in a telephone interview. “The most important thing from an American perspective is that they not let the banking system implode, and even that is not guaranteed.”

Equities slumped this week as higher government bond yields in Spain, France and Italy spurred concern the European debt crisis is intensifying outside Greece. The S&P Financials Index slumped 5.6 percent this week, the biggest drop among 10 industries, after the Fitch report spurred speculation the European crisis poses a threat to earnings.

Italian Government

The S&P 500 advanced one day this week, on Nov. 15, amid speculation Mario Monti would succeed in forming a new Italian government to battle the debt crisis, while growth in retail sales bolstered optimism in the economy. Yesterday, he won a final parliamentary confidence vote, granting full power to his new government after pledging to spur growth and reduce debt in the euro-region’s third-largest economy.

The benchmark measure of U.S. stocks erased gains yesterday after Deutsche Presse-Agentur reported that Germany’s Foreign Ministry said the nation was considering the possibility of “orderly defaults” beyond Greece. The index had rallied after a measure of leading U.S. indicators signaled the world’s biggest economy will keep growing in 2012.

‘Somewhat Misguided’

“It is right for investors to be concerned about Europe, however the day-to-day focus is somewhat misguided,” Michael Cuggino, who helps manage about $15 billion at Permanent Portfolio Funds in San Francisco, said in a telephone interview. “The problems and possible solutions are long-term in nature and not going to happen overnight. This focus is masking some of the more positive news in the U.S. and emerging markets with regards to growth.”

The Morgan Stanley (MS) Cyclical Index lost 4.5 percent as 28 of its 30 stocks retreated. The Dow Jones Transportation Average slumped 2.8 percent. Both fell the most in a week since September.

Sears, the retailer controlled by hedge-fund manager Edward Lampert, lost 14 percent to $64.27 after reporting a steeper third-quarter loss as sales declined for the 19th straight quarter.

Abercrombie & Fitch posted the second-biggest drop in the S&P 500, slumping 17 percent to $47.30. The teen-clothing retailer reported third-quarter earnings that trailed analysts’ estimates amid higher costs.

‘Serious Risk’

Banks dropped after Fitch said they face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis worsens. Morgan Stanley slipped 13 percent to $14.21. JPMorgan dropped 8 percent to $30.62. Citigroup Inc. (C) slid 10 percent to $26.28.

Refiners declined after Enbridge Inc. agreed to buy ConocoPhillips’s 50 percent stake in the Seaway pipeline system for $1.15 billion. Enbridge and Enterprise Products Partners LP then announced they plan to change the pipeline’s direction to make it flow from the crude storage hub at Cushing, Oklahoma, to the U.S. Gulf Coast. That may boost costs for crude and cut refining profits.

Marathon Petroleum slumped 13 percent to $32.82. HollyFrontier dropped 14 percent to $24.38.

Hewlett-Packard Co. (HPQ) rose 1.5 percent to $27.99. The largest computer maker appointed activist shareholder Ralph Whitworth of Relational Investors LLC to its board after he accumulated an almost 1 percent stake.

Clearwire Corp. (CLWR) fell 24 percent to $1.47 after the Wall Street Journal reported the unprofitable wholesale wireless carrier is evaluating whether to make a Dec. 1 debt payment, citing its chief executive officer.

To contact the reporter on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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