Tuesday, November 1, 2011

U.S. Stocks Slump as Greek Referendum Threatens Bailout Efforts

U.S. stocks slumped, following the biggest decline in almost a month for the Standard & Poor’s 500 Index, on concern that a Greece referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout.

Bank of America Corp. (BAC) and Citigroup Inc. (C) retreated more than 6 percent as a gauge of European lenders tumbled 7.2 percent. Freeport-McMoRan Copper & Gold Inc. (FCX) and Halliburton Co. (HAL) dropped at least 7.4 percent as commodity prices fell. General Electric Co. (GE) decreased 2.9 percent to pace declines among companies most-reliant on economic growth.

The S&P 500 fell 2.6 percent to 1,220.35 as of 9:40 a.m. New York time. The benchmark gauge for U.S. equities slumped 2.5 percent yesterday. The Dow Jones Industrial Average declined 268.63 points, or 2.3 percent, to 11,686.38 today.

“I just don’t get it,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “A Greek referendum is a very risky proposition and it’s very surprising. Everybody thought last week that this crisis was behind us on a near-term basis, but Europe is going to be front and center.”

The S&P 500 jumped 11 percent in October, the best monthly gain since 1991, after European leaders took action to contain the debt crisis. Equities trimmed monthly gains yesterday amid concern Europe will struggle to raise financing for a bailout.

Default Risk
Global stocks sank today as a gauge of European shares dropped 3.9 percent. Papandreou’s gambit risks pushing the country into default if rejected by voters, and raises the ante with dissidents in his own party. Equity futures extended losses after state-run Athens News Agency reported, without citing anyone, that six senior members of the ruling party called on Prime Minister George Papandreou to step down.

His popularity has plunged after a raft of austerity measures cut pensions and wages, increased taxes and sparked a wave of social unrest. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.

“The bailout and austerity measures are hugely unpopular among the Greek people,” Andrew Ross, a partner and global equity trader at First New York Securities LLC, a New York-based proprietary trading firm that bets on stocks, commodities and derivatives, said in an e-mail. “In the event Greek people opt out of the bailout program, Greece will default and an extremely ugly precedent will set for Italy, Portugal and Spain.”

‘Material and Consequential’
Fitch Ratings said the proposed referendum in Greece on Europe’s new bailout plan for the country poses a threat to the region’s financial stability. Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said the referendum call “is material and consequential.” Group of 20 leaders gather Nov. 3-4 for a summit in Cannes, France, to discuss the debt crisis.

American banks tumbled. Bank of America retreated 6 percent to $6.42. Citigroup declined 8.6 percent to $28.87.

U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd., according to two people with knowledge of the matter. The firm, which filed for bankruptcy protection yesterday, was ordered by the enforcement division of the Commodity Futures Trading Commission to preserve records for the review, one of the people said.

Stocks also fell after data showed a Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world’s second-biggest economy.

U.S. Manufacturing

In the U.S., manufacturing probably expanded at a faster pace in October, driven by gains in exports and consumer spending that are keeping the recovery intact, economists said before a report today.

Concern about slower demand for commodities drove energy and raw material shares down. Freeport decreased 7.4 percent to $37.29, while Halliburton sank 8.1 percent to $34.32. Companies most-tied to economic growth also slid. GE dropped 2.9 percent to $16.23. Caterpillar Inc. (CAT) fell 5 percent to $89.77.

Baker Hughes Inc. tumbled 9.6 percent to $52.40. The oilfield contractor reported third-quarter earnings excluding some items of $1.18 a share, missing the average analyst estimate by 3 percent, according to Bloomberg data.

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