Published: Thursday July 22, 2010 MYT 7:07:00 AM
Updated: Thursday July 22, 2010 MYT 7:18:11 AM
Meanwhile European stock markets trimmed a large chunk of their earlier gains Wednesday as U.S. stocks fell ahead of comments from U.S. Federal Reserve chairman Ben Bernanke.
NEW YORK: Stocks fell sharply Wednesday after Federal Reserve Chairman Ben Bernanke confirmed investors' fears that the economy has weakened. Interest rates dropped in the Treasury market as investors sought safer places for their money.
Bernanke told a congressional committee that the economy is "unusually uncertain." He said the economy is fragile, but he did not forecast that it would fall back into recession.
The Dow Jones industrial average, which was modestly higher before Bernanke's prepared remarks, fell 109 points as investors absorbed his assessment of the economy, and his statement that the Fed is ready to take action if the economy worsens.
Bernanke's comments, part of his semiannual report to Congress, weren't surprising given the disappointing economic reports and corporate earnings numbers released in recent weeks. But they were enough to upset investors who have grown increasingly nervous about the state of the recovery. Some investors may have been hoping for a more upbeat reading from the Fed chairman.
The Fed is still expecting the economy to expand this year, but the central bank has lowered its forecast for growth.
Oliver Pursche, executive vice president at Gary Goldberg Financial Services, said investors took Bernanke's comments as "not exactly a ra-ra USA type of endorsement."
Craig Peckham, market strategist at Jefferies & Co., said stocks fell not because of anything Bernanke said, but what he didn't say about any plans to stimulate the economy. Although Bernanke said the Fed was "prepared to take further policy actions as needed," he also said, "we are not prepared to take any specific steps in the near term" because the Fed is still evaluating the economy.
Peckham said, "The market expected that we'd see more sign of monetary easing in the testimony. But that didn't happen." Monetary easing would include steps to make credit more available or encourage banks to lend more.
The market fluctuated for much of the day on another mixed batch of earnings reports. John Merrill, chief investment officer of Tanglewood Wealth Management in Houston said the day was like many others recently: Very little news but lots of professional traders reacting to it.
"Bernanke said he wants to collect more data before doing anything, and that's just fine. But traders are impatient. They got a 'buy' button and a 'sell' button and they're going to do do one or the other," Merrill said.
The Dow fell 109.43, or 1.1 percent, to 10,120.53.
The broader Standard & Poor's 500 index fell 13.89, or 1.3 percent, to 1,069.59.
The Nasdaq composite index lost 35.16, or 1.6 percent, and fell to 2,187.33.
Two stocks fell for every one that rose on the New York Stock Exchange.
Volume came to 1.2 billion shares.
Treasury prices surged and their yields fell as investors sought out the safety of government debt after Bernanke's testimony.
The yield on the benchmark 10-year Treasury note, which helps set rates on mortgages and other kinds of loans, fell to 2.88 percent from 2.96 percent late Tuesday.
Investors have been selling stocks since late April on a combination of weak economic indicators and disappointing earnings reports.
The Dow, which reached a 2010 high of 11,205.03 on April 26, has fallen 10 percent as investors have seized on any piece of bad news and shrugged off more positive signs about the economy.
In the past few days, companies' revenue figures have become a culprit. Although companies including IBM Corp. and General Electric Co. have beat analysts' second-quarter earnings estimates, their revenue has not met expectations and investors have been selling. The belief in the market is that companies aren't getting the strong sales needed to fuel the economic recovery.
"The numbers aren't bleak but there's no top-line growth, and that's scaring people. There's a realization that the economy is stuck in slow growth for a year or two," said Brian Wenzinger, a portfolio manager at Aronson-Johnson-Ortiz in Philadelphia.
Stocks fell across the market Wednesday. Of the few stocks in the S&P 500 that rose, most were companies that had upbeat earnings news Wednesday or late Tuesday.
Morgan Stanley rose $1.58, or 6.3 percent, to $26.80, after its second-earnings were better than expected. The investment bank weather the stock market's difficult quarter better than some of its competitors. Another banker, Wells Fargo & Co., rose 15 cents, or 0.6 percent, to $26.06, after also surpassing expectations.
Coca-Cola Co. rose 84 cents, or 1.6 percent, to $54.08 after saying its North American soft drink sales stopped falling during the April-June period.
Thursday's earnings reports include some from companies seen as measures of how the overall economy is faring: United Parcel Service Inc., Microsoft Corp. and Caterpillar Inc.
Meanwhile European stock markets trimmed a large chunk of their earlier gains Wednesday as U.S. stocks fell ahead of comments from U.S. Federal Reserve chairman Ben Bernanke.
In Europe, the FTSE 100 index of leading British shares closed up 75.18 points, or 1.5 percent, at 5,214.64.
Germany's DAX rose 22.89 points, or 0.4 percent, to 5,990.38.
The CAC-40 in France ended 25.90 points, or 0.8 percent, higher at 3,493.92.
European stocks outperformed their U.S. counterparts Wednesday because they had ended down Tuesday before Wall Street rallied.
The main reason behind Europe's advance Wednesday was Apple's strong results after the close Tuesday — the maker of the iPhone reported a 78 percent increase in net income in the April-June quarter to $3.25 billion and a 61 percent revenue improvement to a record high of $15.7 billion.
Coca-Cola results also came in above forecasts. Income rose 16 percent on higher sales of soft drinks and juices in every part of the world except Europe.
In Europe, sentiment towards the auto sector was boosted by better-than-expected results from Italy's Fiat, which controls Chrysler. Fiat reported a return to second-quarter profits on improved sales of agriculture equipment and trucks, and said it may raise its 2010 forecasts. Its shares spiked 6 percent to €9.60 ($12.33) in Milan.
Other carmakers, such as France's Renault and Germany's Daimler rose on the back of Fiat's report, as hopes rose that they too may report stronger than anticipated earnings.
As the week progresses, investors will be increasingly focusing on the results of the stress tests into a large chunk of the EU's banks.
The results of the tests are due after Europe's markets close on Friday and a number of investors remain skeptical about whether they are a credible exercise.
"Questions continue to be asked as to the credibility of the EU bank stress tests," said Jane Foley, research director at Forex.com
Some of the unease about the stress tests is evident in the performance of the euro over the last couple of days. Having set a new four and a half month high of $1.3028 Tuesday, the euro has fallen around 2 cents. By late afternoon London time, the euro was down 0.5 percent on the day at $1.2813.
Another currency in focus has been the yen, with many currency strategists predicting that it could soon break above last year's high against the dollar, which would open up the potential for a move up to levels not seen since 1995.
That's a concern because a rising yen could hit Japanese exports to the United States, all other things being equal.
The dollar has been hamstrung over recent weeks by a raft of disappointing data, which have reined in market expectations of any imminent increase in U.S. borrowing costs.
By late afternoon London time, the dollar was down another 0.2 percent on the day at 87.29 yen.
The yen's rise has been having a fairly dramatic impact on Japanese stocks.
Wednesday Japan's Nikkei 225 stock average gave up early gains to fall 21.63 points, or 0.2 percent, to 9,278.83, meaning that it has lost 5.3 percent in the past four sessions.
Hong Kong's Hang Seng advanced 1.1 percent to 20,487.23.
South Korea's Kospi added 0.7 percent to 1,748.78.
Australia's benchmark gained 0.2 percent at 4,412.70.
China's Shanghai Composite Index edged up by 0.3 percent to 2,535.39 after big gains in the previous two sessions amid expectations that Chinese authorities are likely to moderate efforts to cool the world's No. 3 economy. - AP
http://biz.thestar.com.my/news/story.asp?file=/2010/7/22/business/20100722071218&sec=business
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