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Stocks fall more than 1% as commodities slump

NEW YORK -- Stocks posted sharp losses in Monday trading as commodities fell sharply following disappointing economic data out of China. Gold was also suffering a sharp sell-off.

The Dow Jones industrial average, which had been in striking distance of 15,000, was off 156.85 points, or 1.1%, to 14,708.21 in late-day trading on Wall Street. The Dow had been down more than 200 points earlier.

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The broader Standard & Poor’s 500 index was down 22.67 points, or 1.4%, to 1,566.18. The technology-focused Nasdaq was off 52.73 points, or 1.6%, to 3,242.22

Downbeat data out of China fueled worries over slowing growth. That led to a drop in oil prices, given that slower growth could mean less demand for the fossil fuel. Oil prices dropped 3.1% to $88.48 a barrel Monday.

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The Chinese report came along with a disappointing April report by the New York Federal Reserve. The Fed’s closely watched Empire State Manufacturing Survey, a measure of economic activity in New York, showed a decline in its general business conditions index. The index fell 6 points to 3.1 in April, below Wall Street expectations. U.S. retail sales figures on Friday also disappointed.

“The data has not been great,” said Karyn Cavanaugh, a market strategist at ING Investment Management in New York.

But despite other recent negative news, stocks have been rallying this year. Even with Monday’s sell-off, the Dow is still up nearly 12% for the year. The S&P; is up nearly 10% for 2013.

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The Federal Reserve has been pumping billions into the economy to stimulate growth by making borrowing easier. The Fed’s “quantitative easing” programs have pushed interest rates near historic lows, making other investments less attractive compared to stocks.

“The stock market has been pretty much whistling past the graveyard when it comes to any bad news," Cavanaugh said. “The market did go up pretty far, pretty fast without a lot of substance, other than quantitative easing, so this step back is maybe just a step back to reality.”

Gold, meanwhile, was taking a beating. Gold prices fell more than 8% Monday. The metal has not seen a plunge this sharp in years -- a precipitous drop Cavanaugh suspects was triggered by a bearish report last week by the investment bank Goldman Sachs.

As the Fed pumped billions into the economy, the central bank stoked fears by some that the U.S. would suffer hyper-inflation. Those fears have not come to pass.

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Cavanaugh says the gold sell-off was inevitable. The meteoric rise in gold prices in recent years was fueled by fear.

“Now the fear trade is unwinding,” she said. “It was bound to happen.”

“Gold was too high,” she added. “Nobody needs to own gold. It’s not interest-bearing. It has storage costs. It’s very volatile.”

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