Stocks fall on China fears
U.S. stocks wilted Wednesday after former Federal Reserve Chairman Alan Greenspan warned of potential trouble in the Chinese stock market.
Early in the trading day, a batch of deal-related news that included a possible bidding war in the aluminum industry caused stocks to rally, lifting the Dow Jones industrials briefly above 13,600 for the first time.
But the excitement waned after a news report said that Greenspan expressed fear of a "dramatic contraction" in Chinese stocks and called their recent boom "clearly unsustainable."
His comments came almost three months after a sharp drop in Chinese stocks amid concerns about speculative investments triggered a global rout in share prices.
"The last big sell-off was China-driven, so Greenspan's comments got people to be a little bit more aggressive on the sell side," said Bobby Harrington, head of block origination at UBS in Stamford, Conn.
Wall Street's mood also worsened when energy prices failed to ease despite a rebound in U.S. crude and gasoline inventories last week. And with key reports on durable goods and new-home sales due for release today and the long Memorial Day weekend looming, investors adopted a defensive stance.
A wave of acquisition news has for weeks been the primary force lifting the Dow, which crossed above the 13,000-point milestone less than a month ago. So after some cautionary comments from Greenspan, analysts were not surprised to see investors take a breather.
"He still carries a lot of clout," said Steven DeSanctis, strategist with Prudential Equity Group, noting that U.S. investors were also very focused on the Chinese economy. "You get a data point like that and people start to take profits, get a little nervous."
The Dow fell 14.30 points, or 0.1%, to 13,525.65, after climbing to an intraday trading record of 13,609.76. The Standard & Poor's 500 index fell 1.84, or 0.1%, to 1,522.28. For a third session in a row, the S&P briefly traded above its record close of 1,527.46 set in March 2000.
The Nasdaq composite index slipped 10.97 points, or 0.4%, to 2,577.05, after briefly trading above the 2,600 mark for the first time in more than six years.
The Russell 2,000 index of smaller companies fell 3.38 points, or 0.4%, to 836.54.
Declining issues outnumbered advancers by about 10 to 7 on the New York Stock Exchange.
Bond yields rose. The yield on the benchmark 10-year Treasury note climbed to 4.85% from 4.83% late Tuesday.
