New York: The S&P 500 turned negative for the year on Tuesday as the wrangling over the US debt ceiling faded and investors turned their attention to the stalling economy.
The broad-based index fell for a seventh day and crashed through its key 200-day moving average in an ominous sign for markets. The seven days of losses mark the longest losing streak since October 2008.
"It is going to be a long week," said Jim Maguire Jr., a NYSE floor trader at EH Smith Jacobs. "The bid is not here in the market."
The selloff accelerated into the close as volume jumped well above average. The fall was broad-based, with four stocks falling for every one rising on the New York Stock Exchange.
The index also broke through its 2-1/2 year uptrend line from its bear market low in March 2009. Thursday was its worst day in a year.
Industrial and consumer discretionary shares, which are sensitive to signs of weakness in the economy, were among hardest hit. The S&P's industrial and discretionary indexes .GSPI .GSPD fell more than 3 percent.
Wall Street's losses followed sharp falls in world equity markets as global manufacturing data this week indicated big industrial economies were on the verge of stalling.
Investors seemed to find little to cheer after the US Senate agreed to a deal to raise the debt ceiling because of the possibility it will not stave off a downgrade of the US government's triple-A rating.
"Investors have made the shift from Washington to what I'm calling economic realities," said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.
Composite volume on the NYSE, the Amex and the Nasdaq reached 9.7 billion shares, well above this year's daily average of around 7.5 billion.
The Dow Jones industrial average .DJI dropped 265.87 points, or 2.19 percent, to 11,866.62. The Standard & Poor's 500 Index .SPX dropped 32.89 points, or 2.56 percent, to 1,254.05. The Nasdaq Composite Index .IXIC dropped 75.37 points, or 2.75 percent, to 2,669.24.
Thursday marked the eighth down day for the Dow industrials, which remained in positive territory for the year.
Shortly after the Senate vote, Fitch Ratings said the agreement to raise the US borrowing capacity means the risk of a sovereign default is "extremely low" and commensurate with a AAA rating. But it warned Washington must reduce its debt or face a downgrade.
A government report showed US consumer spending fell unexpectedly in June for the first decline in nearly two years as incomes barely rose.
On Monday a survey on US factory activity suggested manufacturing stalled in July. The survey followed similarly weak reports from Asia and Europe and came after US growth calculations were sharply cut for the first half of the year.
The government's key monthly jobs report for July is due on Friday and will be closely watched by investors.
Big banks were also hit hard. Citigroup (C.N) fell 3.7 percent to $ 37.04, while Bank of America fell 3.3 percent to $ 9.49. The S&P's financial index .GSPF has fallen more than 10 percent so far this year.
Gold stocks were a bright spot. The precious metal surged over 2 percent to an all-time high as investors scrambled for a safe haven from sliding stock markets.
The Arca Gold Bugs index .HUI, which measures the performance of 16 US-traded gold miners, rose 1.8 percent, led by a 7 percent jump in Harmony Gold Mining (HMY.N).
European debt problems returned to the forefront after French bank BNP Paribas SA (BNPP.PA) took a $ 768.3 million write-down linked to Greece's debt woes.
European shares .FTEU3 hit their lowest close in 11 months, with selling concentrated on Spain's IBEX .IBEX, as well as Italy's FTSE MIB .FTMIB, which hit a 27-month low.
Drug company Pfizer Inc (PFE.N) reported a second-quarter profit that beat expectations by a penny and affirmed its full-year profit view. Shares of the Dow component fell 4.6 percent to $ 18.14.
Asia stocks slide as economy fears rattle markets
Asian stocks fell more than 2 percent and gold remained near a record high above $ 1,660 an ounce on Wednesday, with fears increasing that Washington's efforts to cut spending will slow growth at a time when global industrial activity is already sluggish.
Completion of a last-gasp deal to avoid a US default failed to bring any relief, as investors focused instead on how tighter fiscal policy could constrict US growth and Europe's debt crisis was still worsening.
"I think the conditions have completely changed this week," said Koichi Ono, senior strategist at Daiwa Securities Capital Markets in Tokyo. "Until last week, people have been saying the US debt ceiling was the problem. Now they talk about worries about the health of the economy."
Views on the economic outlook were rapidly being revised, with JPMorgan cutting its forecast on 2012 US growth to 1 percent and markets reflecting expectations of more than 80 basis points of rate cuts in Australia - 60 basis points more than a day ago - contributing to the Australian dollar's slide below $ 1.07.
"There certainly have been weaker numbers globally, particularly out of the US," said Greg Gibbs, strategist at RBS in Sydney. "There is already a high level of uncertainty in global markets and that's another layer which is impacting on sentiment."
US consumer spending fell in June for the first time in nearly two years and incomes barely rose, signs that the economy lacked momentum as the second quarter drew to a close, data on Tuesday showed.
That followed Monday's weak manufacturing data from the United States, Europe and China and last week's disappointing second-quarter US GDP estimate.
Japan's Nikkei share average .N225 fell 2.2 percent and MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 2.3 percent, slipping below its 200-day moving average, an indicator of the medium-term trend. .T
Australian shares .AXJO fell 2 percent and South Korean stocks .KS11 dropped more than 2.5 percent. .AX .KS
On Tuesday, the S&P 500 .SPX, Wall Street's benchmark index, lost 2.6 percent while global stocks, as measured by MSCI's world equity index .MIWD00000PUS, slipped into negative territory for the year to date. .N
Companies, especially in the West, have spent the better part of the past three years cutting debt and improving their profit margins. With the second quarter US earnings season so far showing eight in 10 companies in the S&P 500 meeting or beating estimates, the profit outlook may hold up and margins may even improve further.
"With so many heightened risks right now in the market and so many of them coming from policymakers' comments, the markets are climbing a wall of worry," said Adrian Foster, head of financial markets research, Asia Pacific at Rabobank International in Hong Kong.
"Yet we think that businesses had already battened down their hatches and earnings look reasonably good. So if anything, the risks out there will cause companies to cut costs further."
Fiscal drag
Investors who had initially cheered a deal in Washington to raise the debt ceiling quickly realized that the spending cuts called for under the plan would place a fiscal drag on an already struggling economy.
Europe's sovereign debt crisis also contributed to the gloom - Italian bond yields hit their highest in the euro's 11-year lifetime on Tuesday.
Italy and Spain have been under increased pressure in recent weeks due to concerns that the euro zone's bailout fund is too small to protect larger peripheral economies if the contagion from the Greek crisis cannot be contained.
"It's a pretty bleak picture. The implications for the Italian market and economy going through something similar to Greece is pretty frightening. People are suggesting it's not bailout-able. That's how big it is," said Justin Gallagher, head of Sydney sales trading at RBS.
Safe havens
The gloom sent investors scurrying toward assets seen as offering safety in times of financial turbulence.
The Swiss franc traded around 0.7680 after rocketing to a record high around 0.7610 per dollar on Tuesday, but commodity-linked currencies such as the Australian dollar slipped as investors shed riskier assets.
The euro lost ground against the dollar, trading around $ 1.4180, after falling as low as $ 1.4149.
"It is abundantly clear that market participants have little confidence in the success of the patchwork of solutions that have been discussed by euro zone policymakers thus far," said Samarjit Shankar, managing director of global foreign exchange strategy at BNY Mellon.
Traditional safe haven gold touched a record high at $1,661.14 an ounce, while oil, demand for which is influenced by growth expectations, slipped around 0.5 percent.
Japanese government debt, another safe haven, was in demand, with 10-year futures rising 0.28 point to 142.30, the highest since November, while the benchmark 10-year yield slipped 3 basis points to 1.010 percent.
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