US financials lead rebound after sharp falls

Europe crisis awakens fears of financial meltdown

Mounting worries about the fiscal situation in Europe sent US stock prices sharply lower on Tuesday, but the losses were almost pared as the market rallied just before the closing bell.

Earlier in the day the S&P 500 touched its lowest intra-day level since November.

“The sovereign debt crisis that has erupted in Europe has reawakened investor fears of a financial meltdown, even as the economic data suggest that the
economy has achieved a more sustainable trajectory,” said Steven Ricchiuto, chief economist at Mizuho Securities.

After the closing bell, the S&P 500 was flat at 1,074.03, the Dow Jones Industrial Average had lost 0.2 per cent to 10,043.75 and the Nasdaq Composite was 0.1 per cent lower at 2,210.95.

Financial stocks led the late rally.

Goldman Sachs rose 4.3 per cent to $142.56, Morgan Stanley was 1.4 per cent higher to $26.11, Bank of America was up 0.6 per cent to $15.49 and Citigroup was flat at $3.78.

AIG slid 0.1 per cent to $34.49 as Transatlantic Holdings, the bailed-out insurer’s former reinsurance unit, filed a demand for arbitration against the company tied to losses of more than $350m from securities lending.

Energy stocks sold off as the price of oil fell. Chevron declined 1.2 per cent to $72.57, ExxonMobil pulled back 0.8 per cent to $59.71 and ConocoPhillips lost 0.4 per cent to $49.92.

Shares in apparel company Phillips-Van Heusen declined 0.6 per cent to $53.93 after it forecast earnings of 50 to 52 cents a share in the second quarter, missing analysts’ average estimate of 70 cents a share. Analysts had expected Tommy Hilfiger, a recently acquired brand, to boost earnings but the company said the unit was suffering from weaker seasonal business trends for the second quarter.

Food and beverage group Sara Leefell 1 per cent to $14.21 after it said it would use a portion of the proceeds from sales of household and bodycare units to buy back about $800m of its own shares. The company also has a $500m accelerated stock repurchase programme that it expects to complete this year.

USEC, a leading supplier of enriched uranium fuel for commercial nuclear power plants in the US, rallied 24.1 per cent to $5.26 after Toshiba and Babcock & Wilcox announced an agreement to invest about $200m in the company, in return for a supply of enriched uranium for use in nuclear power generation.

Power generation is one of Toshiba’s main areas of focus.

EMC, an information technology infrastructure company, lost 1.2 per cent to $17.85 after the stock was downgraded from “overweight” to “neutral” by JPMorgan.

Autozone, a retailer of auto parts, bucked the day’s downward trend, to rally 5.6 per cent to $194.57, its all-time high. Its fiscal third-quarter profit came in comfortably above the average analyst estimate.

AK Steel was one the best performers, pushing 11.4 per cent higher to $15.06 as the third-largest steelmaker in the US by 2009 revenues was upgraded from “underperform” to “neutral” at Bank of America.

Cliffs Natural Resources, an iron ore producer, reversed heavy early losses to rise 2.9 per cent to $51.69. The company said it planned to buy the shares it did not already own in KWG Resources and Spider Resources for 12 cents a share for both stocks.

This would allow it to take majority ownership in the Big Daddy chromite project in northern Ontario. KWG and Spider each hold 26.5 per cent stakes in the project and Cliffs owns a 47 per cent interest.

Arkansas Best was one of the worst performing small- cap stocks as it dived 14.4 per cent to $22.26. The trucking company said its union employees rejected changes to their contracts. The stock was cut from “neutral” to “underperform” at Bank of America.

Stifel Financial retreated 1.9 per cent to $50 as Ticonderoga Securities initiated coverage on the stock with a “sell” rating and a 12-month target price of $43
a share.

Teva Pharmaceutical was 1.3 per cent higher to $56.40 as the world’s biggest generic drugmaker said it was testing a version of Rituxan, Roche Holding’s second-biggest-selling drug, which is used to treat diseases ranging from arthritis to cancer.

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