Wall St. drops with banks and oil as bonds rally

By Yashaswini Swamynathan

REUTERS - Banks led Wall Street lower on Thursday, mirroring global stocks, as oil prices fell and bond markets rallied amid demand for safe haven assets.

An index of world equity markets snapped a five-day winning streak. Oil prices snapped a three-day rally as traders took profits, pulling commodity-related stocks lower.

Global stocks were hit after European Central Bank President Mario Draghi warned that monetary policy alone would not avert the risk of Europe suffering lasting economic damage from weak productivity and low growth.

The ECB started buying back corporate bonds on Wednesday, which along with the concerns about Britain's referendum on European Union membership, pushed British and German sovereign debt yields to record lows.

U.S. Treasury yields fell to three-and-a-half month lows on fading chances of the Federal Reserve raising interest rates at its policy meeting next week.

A combination of oil prices, Draghi's warning and some risky events especially the UK vote later in the month are affecting the market, said Julian Emanuel, a U.S. Equity and Derivative Strategist at UBS.

"What we have seen is that the public has been cautious and that wall of worry is ... challenging valuations ahead of some discreetly risky events and today's profit taking is almost a natural process," Emanuel said.

At 12:47 p.m. ET (1647 GMT) the Dow Jones Industrial Average was down 60.85 points, or 0.34 percent, at 17,944.2.

The S&P 500 was down 8.39 points, or 0.4 percent, at 2,110.73 and the Nasdaq Composite was down 26.46 points, or 0.53 percent, at 4,948.18.

Nine of the 10 major S&P sectors were lower, led by a 1.2 percent decline in the financial index. The KBW Bank Index was off 1.8 percent.

The financial index is the only one of the S&P sectors in the red for this year, hit by concerns of bad debt on loans to energy companies, uncertainty about interest rates and fears of slowing global growth.

Goldman Sachs fell 1.2 percent and was the biggest drag on the Dow, while Wells Fargo's 2 percent decline pulled the S&P down the most.

Chesapeake Energy fell 5.8 percent to $4.68 after an RBC downgrade. Other energy stocks also dropped with oil prices.

J.M. Smucker jumped 7.3 percent to $142.39 after the processed foods maker reported better-than-expected rise in quarterly sales.

Declining issues outnumbered advancing ones on the NYSE by 2,045 to 911. On the Nasdaq, 2,027 issues fell and 707 advanced.

The S&P 500 index showed 43 new 52-week highs and no new lows, while the Nasdaq recorded 61 new highs and 23 new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D'Souza)