Stocks fall on China fears
U.S. stocks wilted Wednesday after former Federal Reserve Chairman Alan Greenspan warned of potential trouble in the Chinese stock market.
Early in the trading day, a batch of deal-related news that included a possible bidding war in the aluminum industry caused stocks to rally, lifting the Dow Jones industrials briefly above 13,600 for the first time.
But the excitement waned after a news report said that Greenspan expressed fear of a “dramatic contraction” in Chinese stocks and called their recent boom “clearly unsustainable.”
His comments came almost three months after a sharp drop in Chinese stocks amid concerns about speculative investments triggered a global rout in share prices.
“The last big sell-off was China-driven, so Greenspan’s comments got people to be a little bit more aggressive on the sell side,” said Bobby Harrington, head of block origination at UBS in Stamford, Conn.
Wall Street’s mood also worsened when energy prices failed to ease despite a rebound in U.S. crude and gasoline inventories last week. And with key reports on durable goods and new-home sales due for release today and the long Memorial Day weekend looming, investors adopted a defensive stance.
A wave of acquisition news has for weeks been the primary force lifting the Dow, which crossed above the 13,000-point milestone less than a month ago. So after some cautionary comments from Greenspan, analysts were not surprised to see investors take a breather.
“He still carries a lot of clout,” said Steven DeSanctis, strategist with Prudential Equity Group, noting that U.S. investors were also very focused on the Chinese economy. “You get a data point like that and people start to take profits, get a little nervous.”
The Dow fell 14.30 points, or 0.1%, to 13,525.65, after climbing to an intraday trading record of 13,609.76. The Standard & Poor’s 500 index fell 1.84, or 0.1%, to 1,522.28. For a third session in a row, the S&P; briefly traded above its record close of 1,527.46 set in March 2000.
The Nasdaq composite index slipped 10.97 points, or 0.4%, to 2,577.05, after briefly trading above the 2,600 mark for the first time in more than six years.
The Russell 2,000 index of smaller companies fell 3.38 points, or 0.4%, to 836.54.
Declining issues outnumbered advancers by about 10 to 7 on the New York Stock Exchange.
Bond yields rose. The yield on the benchmark 10-year Treasury note climbed to 4.85% from 4.83% late Tuesday.
Oil futures rose 26 cents to $65.77 a barrel on the New York Mercantile Exchange.
The dollar gained against the yen but slipped against the euro, and gold rose.
Shares of Alcoa, the world’s largest aluminum company, rose to their highest level in more than five years after Canada’s Alcan said it was in discussions with third parties, after its rejection of U.S. rival Alcoa’s $27.6-billion hostile bid Tuesday. Australian mining giant BHP Billiton was said to be considering making its own offer for Alcan.
Alcoa rose $1.42, or 3.7%, to $40.37; Alcan rose $4.86, or 6%, to $85.89; and BHP Billiton rose $1.01, or 2%, to $51.76.
The report followed announcements late Tuesday that Morgan Stanley Real Estate would acquire real estate investment trust Crescent Real Estate Equities for $2.34 billion, and that Payless ShoeSource would buy rival shoe-store chain Stride Rite for about $800 million.
Stride Rite soared $4.76, or 31%, to $20.21. Payless rose $3.24, or 10.2%, to $35.14. Crescent rose 69 cents, or 3.2%, to $22.31.
Adding to the takeover flurry, the Bancroft family, which controls Dow Jones, planned to meet privately to discuss a $5-billion bid by Rupert Murdoch’s News Corp., according to the Wall Street Journal, which is owned by Dow Jones. Dow Jones rose $1.28, or 2.5%, to $52.74.
In other market highlights:
* Target rose 56 cents to $58.60 after the retailer reported its first-quarter profit beat estimates because of strong sales of spring merchandise.
* City of Industry-based apparel retailer Hot Topic fell 81 cents to $10.80 in late trading after reporting a loss for its latest quarter. In regular trading, the stock closed unchanged at $11.61.
* A measure of utility shares fell 1.2% after Treasury yields rose to the highest level since January. Higher bond yields make dividend-paying stocks less attractive.
Public Service Enterprise Group, a New Jersey utility owner, fell $2.78 to $88.41. Consolidated Edison, owner of New York City’s biggest utility, lost 97 cents to $49.73.
* Analog Devices fell $4.03, or 10%, to $36.39 for the steepest drop in the S&P; 500. The chip maker said profit this quarter would be 33 cents to 37 cents a share, below a 41-cent average estimate of analysts.
* Medtronic climbed $2.18, or 4.3%, to $52.98. The biggest maker of electronic heart devices reported better-than-expected earnings.
* Overseas, Chinese stocks swelled to records for the third straight session Wednesday on optimism over reports the government may triple quotas for foreign investment in local bourses. The benchmark Shanghai index gained 1.5%, and the main Shenzhen index rose 2.1%.
Elsewhere overseas Wednesday, key stock indexes rose 0.1% in Japan, 0.2% in Britain, 1% in Germany and 0.5% in France.
