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Stocks fall 2% on continuing fears of slowdown

Dow and S&P indexes decline on disappointing data on jobless claims, home sales and manufacturing, plus financial trouble in Spain and anticipation of a ratings downgrade of 15 big banks.

June 22, 2012|By Andrew Tangel, Los Angeles Times
  • A trader works at the New York Stock Exchange on Thursday. The Dow Jones industrial average's 251-point drop came ahead of an anticipated ratings downgrade of major U.S. banks.
A trader works at the New York Stock Exchange on Thursday. The Dow Jones industrial… (Spencer Platt, Getty Images )

NEW YORK — Stocks took a plunge on Wall Street as investors saw weak U.S. economic data and more European financial trouble.

The Dow Jones industrial average's 251-point drop Thursday came ahead of a highly anticipated ratings downgrade of major U.S. banks. After the market closed, Moody's Investors Service cut ratings on 15 of the world's biggest banks, including Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.

Major U.S. stock indexes closed down about 2%. The Dow shed 250.82 points, or 2%, closing at 12,573.57. The broader Standard & Poor's 500 index lost 30.18 points, or 2.2%, closing at 1,325.51. The Nasdaq fell 71.36 points, or 2.4%, to 2,859.09.

As disappointing data on jobless claims, home sales and manufacturing stoked continuing worries over an economic slowdown, consulting reports showed Spain's troubled banks would need an additional $78 billion to withstand an economic shock.

Spanish banking news was the most significant of the day, said Rebecca Rothstein, managing director at Morgan Stanley Smith Barney in Beverly Hills.

Downgrades of banks by the ratings company Moody's Investors Service have been expected for months, she noted. The rating firm said the downgrades reflected declining profits in the industry, which has been hurt by tougher regulations and a lingering slump in the global economy.

"All of these firms have been in front of it for a long time," Rothstein said.

Wednesday's announcement by the Federal Reserve that it would extend but not significantly expand monetary stimulus was also expected.

"There's really no surprises," she added. "We're watching all this stuff and there's no new news."

Given that equities markets have gained in June, such ripples seem to have caused investors to take profits.

"Markets have had a pretty good 10 days," she said.

Investors who were worried about the latest economic data shifted money into Treasury bonds. The yield on the 10-year note slipped to 1.61%, down from 1.63% late Wednesday.

andrew.tangel@latimes.com

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