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U.S. stocks falter, drag S&P 500 index into the red for 2011

The Standard & Poor’s 500 index is once again in the red for 2011.

A rough day on the markets Wednesday yanked the benchmark index back into negative territory with just two trading days left for the year. The index ended Wednesday down 1.3%, or 15.79 points, at 1,249.64. That is 0.6% below where it began 2011.

The Dow Jones industrial average ended the day down 1.1%, or 139.94 points, at 12,151.41. It is still up 5% for the year.

Investors were rattled by reports that European banks had borrowed large sums from the European Central Bank without lending most of it out, highlighting risks still present in the continent’s economy.

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The European economy will be further tested Thursday when Italy sells a batch of 10-year bonds. The ease with which it does so will point to the confidence investors have in one of the continent’s most troubled economies.

Meanwhile, gold — the relatively safe bet used by investors to sidestep stock volatility — appears to be ending 2011 with a whimper.

The precious metal, whose bull run this year vaulted prices to all-time highs, took its fifth-consecutive trading-day tumble Wednesday. Gold’s price of $1,562.90 an ounce is its lowest level in six months — a far cry from the $1,888.70 high reached Aug. 22.

Some analysts speculated that spot gold prices could breach the near-mythical $2,000-an-ounce threshold given this year’s financial volatility. Investors began to pour into gold during the summer’s stock market volatility that accelerated in August when Standard & Poor’s downgraded the U.S. debt rating.

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Hopes of gold ratcheting higher are now kaput, according to analysts — at least for the foreseeable future. The triple threat of a strong dollar, austerity programs in Europe and an overload of bullish investors has resulted in a “disconcertingly bearish concoction,” independent commodities analyst Dennis Gartman said.

“Anybody who is long is under duress; anybody who is short is in control,” Gartman said of the gold situation. “There is something very serious going on.”

Throw into the mix the light volumes that are common during year-end trading and “it’s hard to tell what’s really going on this week,” said Matt Zeman, a metals trader at Kingsview Financial.

“It gets really goofy,” Zeman said. “But the chart for gold doesn’t look healthy.”

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But Zeman said the continuing downward pressure could eventually spark a sell-off of the metal.

“We may see it break wide open,” he said. “The best place to be in the gold market right now is on the sidelines.”

tiffany.hsu@latimes.com

nathaniel.popper@latimes.com

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