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U.S. Stocks Plunge as S&P 500 Posts Biggest Retreat Since 2009

U.S. stocks plunged, driving the Standard & Poor’s 500 Index to the biggest decline since February 2009, as concern the global economy is weakening prompted a global rout.

Only three out of 500 stocks in the benchmark measure of American equities rose. Losses exceeded 10 percent for 13 of the companies including Alpha Natural Resources Inc. and Gap Inc., which fell after the retailer’s sales missed estimates. All 10 S&P 500 groups slumped, led by losses topping 5.3 percent for energy, material and industrial shares. Chevron Corp. and Alcoa Inc. fell more than 5.7 percent as Japan sold its currency, driving down commodities priced in the dollar.

The S&P 500 decreased 4.8 percent to an eight-month low of 1,200.07 at 4 p.m. in New York. It has retreated 11 percent since July 22, the biggest loss over the same amount of time since March 9, 2009, when the equity bull market began. The Dow Jones Industrial Average declined 512.76 points, or 4.3 percent, to 11,383.68 today, erasing its 2011 gain. Almost 14 billion shares changed hands on U.S. exchanges at 4:27 p.m., 90 percent higher than the three-month average.

“It’s unbelievable,” David Joy, Boston-based chief market strategist at Ameriprise Financial Inc., said in a telephone interview. His firm oversees $693 billion in assets. “The emotional aspect of this is ticking higher. It’s left everybody with this mindset that things are not good. The situation in Europe is getting everyone concerned. We had the impact of the Japan intervention in the currency market. The flight-to-quality trade is going to pick up.”

Global Stocks Tumble

Global stocks had their biggest one-day rout since March 2009. A measure of global equities fell more than 10 percent from this year’s high in May, entering a correction amid concern about a recession. The MSCI All-Country World Index of stocks in developed and emerging markets slid 4.1 percent to 311.60, falling 13 percent from its May 2 high.

Stocks tumbled from Hong Kong to London and Sao Paulo as the yen dropped by the most since October 2008 against the dollar after Japan sold its currency to stem gains that threaten the nation’s economic recovery. The euro fell against the dollar after European Central Bank President Jean-Claude Trichet said policy makers will offer banks additional cash to ease tensions in financial markets.

Trichet indicated the ECB is reluctant to shelve further rate hikes even as investors reduce bets on the ECB adding to its two rate moves in 2011. While acknowledging a “particularly high” level of uncertainty, rates are still “accommodative” and inflation risks “remain on the upside,” he said.

‘Gloomy’ Mood

“The mood right now is gloomy,” Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “The burden of proof is for better data that show the economy is not falling into recession.”

U.S. stocks rose yesterday amid speculation the Federal Reserve may consider another economic stimulus program to avert a recession. The Fed finished its second round of so-called quantitative easing, nicknamed “QE2” by investors, at the end of June. The program helped propel a rally of as much as 28 percent in the S&P 500 after Fed Chairman Ben S. Bernanke foreshadowed the plan on Aug. 27.

Stock-futures maintained losses before the open of regular trading as a report showed that initial claims for unemployment insurance payments in the U.S. fell last week to a level that shows limited improvement in the labor market. Employers added 85,000 workers in July, economists project a Labor Department report to show tomorrow, failing to reduce a jobless rate that’s holding above 9 percent.

‘Crucial’ Report

“Tomorrow’s payroll report is crucial,” UBS’s Ryan said. “If we see another disappointment, the stock market will have significant downside from here.”

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, soared 35 percent, the most since February 2007, to 31.66. The S&P 500 moved in a 4.8 percentage-point range between today’s intraday high and low, the widest range since a 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. shares before prices rebounded. Today’s swing is more than double the 1.59 percentage-point average range in the past four weeks.

‘Not a Flash Crash’

“It’s not a flash crash,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said in a telephone interview. His firm oversees $1 billion. “It’s much more orderly and I don’t see any weird prints like we saw that day in individual issues. It’s a plain and simple liquidation of equities and commodities.”

Bank of New York Mellon Corp., the world’s largest custody bank, will charge clients a 13 basis point fee for “extraordinarily high” cash deposits. A basis point is one-hundredth of a percent.

“We have seen a growing level of deposits on our balance sheet from clients seeking a safe haven in light of the global interest rate and credit environment,” the company said today in an e-mailed statement.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth tumbled 6.7 percent as all of its 30 stocks retreated. The Dow Jones Transportation Average of 20 stocks, considered a proxy for the economy, slumped 5.1 percent.

“The market’s essentially pricing in a greater risk of a recession,” New York-based Kevin Shacknofsky, who helps manage about $6 billion for Alpine Mutual Funds, said in a telephone interview. “It’s the cyclical, economically sensitive parts of the economy that are getting hurt the most.”

Commodity Shares Slump

Energy and raw-material shares led the declines in the S&P 500, falling at least 6.6 percent. Chevron, the second-largest U.S. oil company, slid 5.8 percent to $96.84. Alcoa, the largest U.S. aluminum producer, sank 9.3 percent to $12.94.

Gap decreased 12 percent to $16.98. The retailer said July same-store sales fell 5 percent, compared with analysts’ estimates for a decline of 0.6 percent.

Only three stocks in the S&P 500 rose today. Motorola Mobility Holdings Inc., the handset maker spun off from parent Motorola Inc., rallied 3.6 percent to $23.09. Vulcan Materials Co., the producer of crushed stone, gained 1.6 percent to $33.54. PG&E Corp., the San Francisco-based utility owner, advanced 0.4 percent to $40.65.

The rout since July 22 dragged the S&P 500’s valuation to 13.2 times reported earnings, the cheapest level since April 2009, a month after the bull market began, according to data compiled by Bloomberg.

Laszlo Birinyi, one of the first investors to recommend buying stocks when the bull market began, said he remains optimistic about U.S. equities even after the biggest nine-day slump since March 2009.

“Our view continues that we’re in a long-term bull market, and in long-term bull markets you have downdrafts,” he said in a Bloomberg Radio interview today. “Everything that we’ve built our bullish case on continues to exist.”

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