Dow loses ground

The Dow Jones closed down 64.3 at 14447.8 last night.

Dow loses ground

The Dow Jones closed down 64.3 at 14447.8 last night.

Stocks reversed an early rise on Wall Street as traders returned to worrying about the European economy.

Optimism about a deal to prevent financial collapse in Cyprus had briefly pushed the Standard & Poor's 500 index to within a quarter-point of its record closing high, but stocks soon turned negative.

The S&P 500 and Nasdaq composite index both closed down 0.3%.

Stocks went negative about an hour into the trading day as the initial euphoria about Cyprus' deal to secure €10bn in emergency funding was overshadowed by renewed concerns about the European economy.

The fear intensified after a top European official indicated that investors in struggling banks may be forced to take losses - an element of the Cyprus agreement that had previously been seen as unique to that country.

All 10 industry groups in the S&P 500 closed lower, with industrial and materials companies posting the biggest losses.

Europe still needs a long-term economic fix, said David Kelly, chief global strategist at J.P. Morgan Funds.

Business activity in the 17 nations using the euro has declined continually since September 2011, according to research by Markit, a data provider.

The region's economy shrank 0.6% in 2012, according to official government statistics.

Business activity in nations that use the euro contracted more quickly in March, according to Markit's closely-watched survey of purchasing executives, which was published on Thursday. The index had its worst decline in four months.

European policy makers have avoided a financial crisis by flooding the market with cash, but they haven't addressed economic hardship on the ground, Mr Kelly said.

In granting Cyprus' emergency rescue, for example, lenders demanded economic reforms, debt payments and a banking overhaul that will result in heavy losses for bank bondholders and shareholders. In addition, people with more than €100,000 in their accounts will lose up to 40% of their deposits.

Mr Kelly said that was tough to swallow for people facing high unemployment and government cutbacks in Greece, Italy, Spain and other countries that received bailouts.

"If they're going to end up broke anyway," Mr Kelly said, it will be "harder and harder for people to make the sacrifices that Europe is demanding of them".

That could lead voters in bailed-out countries to resist lenders' terms, increasing political and economic instability in Europe and weighing on global markets, he said.

That concern intensified today after a key official indicated that the Cyprus rescue may serve as a model in other nations with struggling banks.

"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders," said Jeroen Dijsselbloem, who chairs meetings of finance ministers from nations that use the euro, in an interview with the Financial Times and Reuters.

Mr Dijsselbloem's office confirmed the remarks.

Wall Street had opened higher, following gains in Europe and Asia.

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