Another series of attacks in London unnerved Wall Street Thursday, sending stocks falling as investors looked past strong earnings and China’s decision to revalue its currency.
“I think the London incident gave investors an excuse to take some money off the table after reaching new highs yesterday,” said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. “Otherwise, the news was outstanding. The China revaluation is great news, and a step in the right direction. Earnings are coming in better than expected. Oil is down. But London gave the markets some jitters, certainly.”
China’s news that it would float its currency against a basket of other currencies was seen as positive – possibly giving U.S. exporters more opportunities in China. The move was also seen as a boon to blue-chip companies, many of which have benefited from China’s economic boom. Bonds fell sharply, however, on fears that higher import prices could spur inflation.
The Dow Jones industrial average dropped 61.38, or 0.57 percent, to 10,627.77.
Broader stock indicators were narrowly lower. The Standard & Poor’s 500 index fell 8.16, or 0.66 percent, to 1,227.04, and the Nasdaq composite index slipped fell 9.97, or 0.46 percent, to 2,178.60. Both the S&P and Nasdaq set new four-year highs on Wednesday.
China’s currency move sent bonds tumbling, with the yield on the 10-year Treasury note rising to 4.27 percent from 4.18 percent late Wednesday. And the dollar fell against most major currencies in the wake of China’s decision, which traders felt would benefit Asian and European currencies over the dollar. Gold prices were unchanged.
The United States had pressured China to revalue its currency for some time, accusing the country of keeping its yuan artificially low in order to undercut U.S. manufacturers.
“I think this is definitely, score one for investors, with probably a zero score for consumers,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “It’s very unlikely that this will result in higher consumer prices here, but exporters should see some benefit, especially large-cap and growth companies.”
Federal Reserve Chairman Alan Greenspan hailed China’s move as a good first step, and reiterated his bullish outlook on the economy in a second day of congressional testimony. His forecast was backed up by the latest reading of the Conference Board’s index of leading economic indicators, which rose 0.9 percent in June, the largest increase since December 2003.
In addition, the Labor Department reported first-time jobless claims fell sharply, down 34,000 to 303,000 last week. Investors welcomed the report as a sign of continued economic growth. And oil prices fell as fears of hurricane damage in the Gulf of Mexico eased, with a barrel of light crude quoted at $57.13, down 89 cents, on the New York Mercantile Exchange.
Declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange, where volume came to 1.58 billion shares even with Wednesday’s volume.
The Russell 2000 index of smaller companies fell 10.46, or 1.54 percent, to 667.10.
Overseas, Japan’s Nikkei stock average fell 0.02 percent. In Europe, Britain’s FTSE 100 closed up 0.12 percent, France’s CAC-40 rose 0.16 percent for the session, and Germany’s DAX index surged 0.95 percent in late trading.
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