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Business News/ Money / Wall Street rally stumbles as bank fears reemerge
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Wall Street rally stumbles as bank fears reemerge

Wall Street rally stumbles as bank fears reemerge

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New York: US stocks broke a four-day winning streak on Monday after a prominent analyst revived worries over the health of banks and the potential collapse of a takeover of Sun Microsystems bruised sentiment in the technology sector.

Bank shares slipped after veteran analyst Mike Mayo, of Calyon Securities, said banks still face fallout from excessive risk-taking and warned of rising loan losses by the end of 2010. He rated a number of big and regional banks at “underperform" or “sell."

JPMorgan Chase & Co tumbled 3.7% to $28.20, while Wells Fargo dropped 6.7% to $15.25. The renewed worries about banks came after stocks rallied off 12-year lows in the last month, fueled in part by reassuring comments from major banks about their performance in the beginning of the year.

“A few people came out and said the banks weren’t in great shape and that’s all it’s going to take," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas. “Whether or not these infusions from the government will be enough, nobody knows.

“Uncertainty leads to fear and fear leads to selling."

Shares of Sun Microsystems Inc. dove 22.5% to $6.58 after a source with knowledge of the matter said talks with IBM to acquire its smaller rival broke down. IBM eased 0.7 percent to $101.56 and was among the top drags on the Dow.

The Dow Jones industrial average fell 41.74 points, or 0.52%, to 7,975.85. The Standard & Poor’s 500 Index lost 7.02 points, or 0.83%, to 835.48. The Nasdaq Composite Index was down 15.16 points, or 0.93 percent, at 1,606.71.

Billionaire investor George Soros, meanwhile, told Reuters the US economy was in for “a lasting slowdown" and that it wouldn’t recover in 2009. He also said the “banking system as a whole is basically insolvent."

Resource shares also pressured the market as the price of oil and other commodities fell. Chevron was down 0.8% at $69.89, and US front month crude fell $1.46 to $51.05 a barrel.

On the Nasdaq, Cisco Systems slid 3.5% to $17.53 and was one of the index’s top drags after Goldman Sachs cut the stock to a “neutral" rating and removed it from the firm’s “Conviction Buy" list.

Since hitting a bear market closing low on 9 March, the S&P 500 is up more than 23%, spurred by hopes that the economic slump is moderating and banks are stabilizing as policy-makers continue an aggressive campaign to shore up the system.

The recent momentum in financials and sectors such as technology, which analysts say may lead a recovery, helped the Dow rack up its best four weeks since 1933.

On the bright side, shares of defense companies fared well after Defense Secretary Robert Gates unveiled a 2010 budget plan for defense spending. The plan would cancel several big-ticket weapons programs but add funding for unmanned aerial vehicles and other programs.

Trading was moderate on the New York Stock Exchange, with about 1.3 billion shares changing hands, below last year’s estimated daily average of 1.49 billion, while on Nasdaq, about 2.05 billion shares traded, belowlast year’s daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by 2,098 to 923 while decliners beat advancers on the Nasdaq by about 1,866 to 812.

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Published: 07 Apr 2009, 08:31 AM IST
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