Stocks, dollar drop on recovery worries

Stocks, commodities and the dollar slumped and Treasuries gained as data on manufacturing, jobless claims and home sales fuelled concern the economic recovery is faltering.

The Standard & Poor’s 500 Index fell for a fourth straight day, losing 1.8 per cent to 1,012.34, below its lowest close since September 3, 2009. The MSCI World Index of 24 developed nations lost 1.3 per cent to near a 10-month low. Oil and copper dropped at least 2.9 per cent in New York and the 10-year Treasury yield slipped four basis points to 2.9 per cent. The dollar slumped against the euro as a Spanish bond sale met targets and pessimism surrounding European banks diminished.

The slide in riskier assets came as reports showed manufacturing growth slowed in China, Europe and the US, while American jobless claims unexpectedly rose to 472,000 last week and home sales fell at twice the rate economists forecast as the absence of a government tax credit sapped demand. The S&P 500 has lost 17 per cent from its 2010 high in April and yesterday completed its first quarterly drop in more than a year.

“It’s a data-dependent market, the leading indicators are turning down and growth is slowing,” said Mike Morcos, senior portfolio manager at Old Second Wealth Management in Aurora, Illinois, which manages about $1.1 billion. “It now turns out the recovery is weaker than the market thought earlier in the year,” he added.

Financial shares in the S&P 500 slumped 2.4 per cent as a group for the biggest drop among 10 industries after Bank of America analysts reduced second-quarter earnings estimates for Goldman Sachs, Morgan Stanley, JPMorgan Chase & Co and Citigroup Inc, sending each of their shares down.