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Stocks have their biggest one-day drop since June

A drop in oil prices, and North Korea's nuclear test, weighed on Wall Street on Friday.
A drop in oil prices, and North Korea’s nuclear test, weighed on Wall Street on Friday.
(Mark Lennihan / Associated Press)

Investor jitters over the possibility the Federal Reserve is ready to raise interest rates this year roiled Wall Street on Friday, handing the stock market its worst day in more than two months.

The Dow Jones industrial average sank nearly 400 points, its biggest single-day loss since June. The broad slump wiped out two months of gradual gains, jolting the market out of a mostly flat course over the last several weeks.

The prospect of rising interest rates sent bond prices lower, pushing the yield on the 10-year Treasury note to its highest level since late June. It climbed to 1.67% from 1.60%.

Many investors have counted high-dividend stocks as a counterweight to ultra-low bond yields and strong valuations in the broader stock market. But as bond yields rose Friday, investors sold off those defensive high-dividend stocks.

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Phone and utilities stocks fell far more than the rest of the market. AT&T fell 3.6% to $39.71. Verizon slid 3.3% to $51.82.

Energy companies, which have also gained a lot this year, took a drubbing as the price of crude oil fell.

Remarks by a Fed bank president early Friday fueled growing speculation among traders that the central bank could be ready to lift its key interest rate for the first time since December 2015. Ultra-low interest rates have been a key driver of an extended stock market rally.

“We have a good probability that we’re getting it by the end of the year,” said JJ Kinahan, chief strategist at TD Ameritrade.

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The Dow fell 394.46 points, or 2.1%, to 18,085.45. The Standard & Poor’s 500 index sank 53.49 points, or 2.5%, to 2,127.81. The Nasdaq composite index dropped 133.57 points, or 2.5%, to 5,125.91.

The three indexes notched their biggest losses since June 24, just after Britain voted to leave the European Union. The S&P 500 had its worst week since early February.

Friday’s swoon was a swift reversal for the market. The Nasdaq set record highs on two consecutive days this week. And the Dow and S&P 500 hit new highs last month.

The signs of a rough day appeared early Friday as the market opened lower. Then investors got wind of the remarks by Fed Bank of Boston President Eric Rosengren, who said a case could be made for the central bank to raise its key interest rate sooner rather than later.

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The Fed is scheduled to hold a policy meeting this month. In recent weeks, few observers have expected the Fed to lift rates this month, speculating that a December hike is more likely, said Bill Northey, chief investment officer of the Private Client Group at U.S. Bank.

“We have been in that camp, still believe it will be a December move rather than a September move, but September cannot be ruled out at this point,” Northey said.

Oil prices closed lower after rallying a day earlier. Benchmark U.S. crude fell 3.7% to $45.88 a barrel. Brent crude, used to price international oils, slid 4% to $48.01 a barrel.

Falling oil prices hurt several oil and gas production and drilling companies. Diamond Offshore Drilling led the decliners in the S&P 500, dropping 10.3% to $15.60. Transocean fell 6.1% to $9.83 and Marathon Oil sank 6.4% to $15.67.

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Not all stocks had a rough day.

Furniture and housewares retailer Restoration Hardware rose 3.8% to $36.63, and fiber optic components supplier Finisar jumped 12.8% to $26.20, after posting strong quarterly results.

Disappointment over Thursday’s decision by the European Central Bank to keep monetary policy unchanged continued to weigh on European markets. Germany’s DAX fell 1%, France’s CAC 40 lost 1.1% and Britain’s FTSE 100 was down 1.2%.

In Asia, concerns over North Korea’s latest nuclear test hit stocks in South Korea. The Kospi index fell 1.3%. Japan’s benchmark Nikkei 225 rebounded from an initial drop to finish little changed. Hong Kong’s Hang Seng index rose 0.8%.

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In energy trading, wholesale gasoline fell 6 cents to $1.36 a gallon. Heating oil fell 5 cents to $1.43 a gallon. Natural gas slipped a penny to $2.80 per 1,000 cubic feet.

Among metals, gold slid $7.10 to $1,334.50 an ounce and silver fell 31 cents to $19.37 an ounce. Copper slipped a penny to $2.09 a pound.

In currency markets, the dollar rose to 102.70 yen from 102.49 yen. The euro slipped to $1.1226 from $1.1257.

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UPDATES:

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2:40 p.m.: This article was updated with additional information.

1:15 p.m.: This article was updated with the close of markets.

7:50 a.m.: This article was updated with more recent market information.

This article was originally published at 7:05 a.m.

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