Dow, S&P 500 Indexes Drop 1% as U.S. Struggles to Rein Debt

Bikram Pandey
18 Apr, 2011
New York City

U.S. indexes dropped after a rating agency sounded alarm on the rising U.S. debt. The talks of possible U.S. debt downgrade only added to market jitters as sovereign default worries resurfaced in Europe. Commodities declined but precious metals gained.

[R]4:00 PM New York – U.S. indexes dropped after a rating agency sounded alarm on the rising U.S. debt. The talks of possible U.S. debt downgrade only added to market jitters as sovereign default worries resurfaced in Europe. Commodities declined but precious metals gained.[/R]

U.S. indexes traded lower after a rating agency said a one-in-three chance that it will lower the U.S. credit in the next two years. The rating agency cited that there are wide differences between budget proposals among the Democrats and Republicans.

In merger news, Baxter agreed to acquire Prism Pharma for $338 million and Bombardier inked $867 million contract with DB Regio.

In earnings news, Citigroup first quarter net income fell 32% to $3 billion. KeyCorp first quarter net income grew to $173 million. TD Ameritrade second quarter net income rose 5.6% to $171.7 million.

W.W. Grainger first quarter net income earnings soared 59% to $158 million and Eli Lilly first quarter net income declined 15% to $1.06 billion.

Sovereign debt worries resurfaced in Europe. Greece reiterated that the nation has no plans to restructure its debt but the German media quoted Greek finance ministry sources that the nation’s debt restructuring is inevitable. The Bundesbank forecasted positive economic growth in Germany. Finnish producer price inflation soared in March. Italian current account deficit widened to €6.33 billion in February.

European indexes slumped on euro-zone sovereign debt concerns. Nestle acquired 60% stake in China-based Yinlu Foods. France Telecom-Orange and Deutsche Telekom agreed to form a venture to cut costs. Synthes confirmed talks with Johnson & Johnson.

The UK indexes plunged after a ratings agency lowered its debt ratings on five Irish banks. The UK home price index rose in April and manufacturing workers'' pay deals increased. Capital Pub Company surged as revenues improved 24%.

Stocks in Mumbai trading turned negative on the earnings worries, high commodities and crude oil prices and weak global sentiment. Ahead of earnings banks were weak. Tata Power inches closer to raise as much as $400 million. HDGF Bank fourth quarter net soared 33% and hiked dividend to Rs 16.50 a share.

Stocks in Tokyo trading declined as investors awaited earnings in the next two weeks. Trading volume dropped to the lowest in the year as G-20 meeting failed to produce concrete actions. Tepco is expected to receive multi-billion dollar infusion to pay for disaster expenses.

Stocks in Sydney trading gained and the meeting of G-20 finance ministers failed to produce any specific steps to lift the global economic growth. Retail price of petrol in Australia jumped to 30-month high. Woolworths sales increased 5.1%. Residential land transaction dropped to the lowest in a decade as prices soar.

Commodities, Bonds and Currencies

The 10-year bond yield decreased to 3.37% and 30-year bond increased to 4.46%.

The U.S. dollar increased to $1.423 to a euro and rose against the Japanese yen to 82.66 yen.

Immediate delivery futures of Texas crude oil decreased $2.36 to $107.30 a barrel, of natural gas decreased 0.07 cents to $4.13 per mbtu and gasoline prices decreased 3.35 cents to 325.57 cents a gallon.

In metals trading, copper prices decreased 4.4 cents to $4.23 per pound, gold increased $10.80 to $1,496.80 per ounce and silver increased $0.82 to $43.40.