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U.S. Stocks Slump on Concern Europe Failing to Tame Debt Crisis

Dec. 19 (Bloomberg) -- U.S. stocks slumped, following a two-day advance in the Standard & Poor’s 500 Index, as financial shares tumbled and concern grew that European officials were failing to make progress in taming the debt crisis.

Bank of America Corp. fell 4.1 percent, dropping below $5 for the first time since March 2009, on a report that large financial institutions will have to hold extra capital. JPMorgan Chase & Co. and Morgan Stanley declined more than 3.7 percent. Alcoa Inc., Hewlett-Packard Co. and Microsoft Corp. slid at least 1.8 percent to pace losses among the biggest companies.

The S&P 500 declined 1.2 percent to 1,205.35 at 4 p.m. New York time. The benchmark measure for American equities advanced 0.7 percent over the previous two days. The Dow Jones Industrial Average decreased 100.13 points, or 0.8 percent, to 11,766.26 today. About 6.3 billion shares changed hands on U.S. exchanges, or 21 percent below the three-month average.

“It’s not all roses and candy,” Malcolm Polley, who oversees $1.1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania, said in a telephone interview. “You have a stubborn debt problem in Europe. The level of distrust has been -- you guys say you have things fixed and then it turns out you don’t. Until it’s actually done, we’re not going to believe you.”

The S&P 500 has fallen 4.2 percent in 2011, poised to snap a two-year rally, amid concern about slower global growth as European leaders struggled to solve the region’s debt crisis. Financial shares had the biggest decline among 10 groups in the benchmark measure this year, tumbling 23 percent.

Substantial Risks

Stocks fell today as European Central Bank President Mario Draghi said substantial risks to the economy remain and the law forbids him from increasing government bond purchases to fight the crisis. Equities extended losses as Dow Jones reported that European Union finance ministers failed to agree on raising the joint ceiling of their temporary and permanent rescue funds.

The first part of 2012 will be “risk off” as Europe’s sovereign-debt crisis encourages demand for safety, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co.

“This idea of austerity first, money second is a tougher road to take in Europe,” James Dunigan, who helps oversee $103 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “It may end up in the right result, but it’s going to take a lot longer. The tendency is to reduce risk, not add it.”

All 10 groups in the S&P 500 retreated, as gauges of financial and commodity shares had the biggest declines. The Morgan Stanley Cyclical Index slid 2.3 percent amid concern about economic growth.

Banks Tumble

The KBW Bank Index slumped 2.7 percent as all of its 24 stocks fell. The Federal Reserve is expected to embrace a new global framework that requires big banks to hold extra capital, the Wall Street Journal reported, citing people familiar with the situation.

“For the large U.S. banks, it makes sense that they would be asked to hold higher levels of capital,” Stewart Capital’s Polley said. “They are a systemically bigger problem.”

Banks should be forced to reveal more data about their financial reserves so that they can’t conceal poor management decisions and excessive risk-taking, global regulators said. Lenders should “disclose the full list” of instruments that they are counting toward meeting their required minimum capital levels, the Basel Committee on Banking Supervision said in an e-mailed statement today.

BofA Below $5

Bank of America, the second-biggest U.S. lender, retreated 4.1 percent to $4.99. A sustained decline below $5 could reduce its appeal to some investors, said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina.

“As active managers, we have screens that usually prohibit us from buying stocks under $5,” Teal said in an interview, citing the greater volatility and risk of such equities.

JPMorgan tumbled 3.7 percent to $30.70. Morgan Stanley dropped 5.5 percent to $14.16. Citigroup Inc. slumped 4.7 percent to $24.82.

Some of the biggest companies fell. Alcoa, the largest U.S. aluminum producer, dropped 3.2 percent to $8.53. Hewlett-Packard declined 2.8 percent to $25.13. Microsoft slid 1.8 percent to $25.53.

A measure of raw material shares in the S&P 500 lost 1.9 percent. Copper declined on concern that demand will ease after property prices dropped in China, the world’s top consumer of industrial metals. Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper miner, lost 3.4 percent to $35.74.


Schnitzer Steel Industries Inc. tumbled 9.2 percent to $41.54. The century-old steel recycler reported preliminary first-quarter earnings that were less than analysts projected because of slower demand and a decline in sales prices.

Cablevision Systems Corp. rose 2 percent to $13. The cable company was added to the Top Picks Live list at Citigroup, which said the stock’s declines after earnings reports that missed analyst estimates and the departures of executives were “a touch extreme.” The company and Verizon Communications Inc. settled a lawsuit over ads that Cablevision claimed misrepresented its Internet speeds, a Verizon spokesman said.

To contact the reporter on this story: Rita Nazareth in Sao Paulo at

To contact the editor responsible for this story: Nick Baker at

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