By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks declined Monday, erasing
gains that briefly put the S&P 500 Index less than 1 point from
its record close, as investors worried that the plan for bank
restructuring in Cyprus would lead to deposits taking a hit in
other European countries.
After starting the session with gains, equities fell sharply,
only to trim losses after the European Central Bank said it would
continue providing emergency funds to Cyprus.
"This is just a reality check. The initial euphoria was Cyprus
at least didn't sink into the Mediterranean Sea. But, as you dive
in further, you realize Europe still does have significant issues
to resolve," said Ron Florance, managing director of investment
strategy at Wells Fargo Private Bank.
After coming within a fraction of its all-time closing high of
1,565.15, hit in October 2007, the S&P 500 (SPX) was lately off
3 points, or 0.2%, at 1,553.87.
Materials fell the hardest and telecommunications fared best
among the S&P's 10 major sectors.
The S&P 500 nearing its all-time closing high is "much more
of a Main Street story than a Wall Street story, as we've been
watching this from 2009," said Hogan, referring to the bull market
that started a fifth year in March. The index has more than doubled
from its 2009 bottom.
After rising as much as 51 points and then falling 117 points,
the Dow Jones Industrial Average (DJI) was more recently down 46.54
points, or 0.3%, to 14,465.49.
The Nasdaq Composite (RIXF) dropped 2.06 points, or less than
0.1%, to 3,242.93.
For every three stocks that rose, nearly four fell on the New
York Stock Exchange, where 332 million shares traded by 1:55 p.m.
Eastern.
Composite volume topped 1.9 billion.
Equities furthered their declines after a key euro-zone official
suggested that the Cyprus bailout deal could be used as a template
for other countries that may need aid.
Dutch Finance Minister Jeroen Dijsselbloem, chairman of the
Eurogroup of euro-zone finance ministers, reportedly said the
rescue of Cyprus offers a new template for addressing trouble in
the euro area.
The euro (EURUSD) fell, along with U.S. and European equities in
the wake of the remarks reported by Reuters. The euro (EURUSD)
slumped to $1.2874 after rising as high as $1.3048 in Asian trade
on Monday.
The main concern is that the Cyprus deal includes a tax on some
bank deposits -- an unprecedented step that could potentially
trigger bank runs.
Cyprus and international lenders struck a last-minute bailout
deal early Monday, clearing the way for the euro area's
third-smallest economy to receive 10 billion euros ($13 billion) in
financing.
The agreement calls for a restructuring of two of the island
country's largest banks -- Popular Bank of Cyprus (also known as
"Laiki Bank") and Bank of Cyprus -- as well as a downsizing of the
nation's overall banking sector.
Deposits at both banks larger than EUR100,000, the cutoff
between insured and uninsured deposits, will be subject to a
levy.
"We were having too much of a celebration over the near-term
success of fixing the Cyprus problem, but the devil is in the
details, and the details are still coming out," said Art Hogan,
market strategist at Lazard Capital Markets. "The good news is
disaster has been avoided; the bad news is the knock-on effect," he
said.
Dell (DELL) shares gained 3.1% after the computer maker
confirmed it received competing bids from private-equity firm
Blackstone Group LP and billionaire investor Carl Icahn that could
top one offered by founder Michael Dell.
In a prepared speech for delivery Monday afternoon in New York,
Federal Reserve Bank of New York President William Dudley said the
Fed's monetary policy should remain "very accommodative" to give
the labor market more time to strengthen.
Dudley also said the Fed must press ahead with its bond-buying
program as Congress is going about fiscal policy the wrong way.
"If you are worried about the Fed ending asset purchases early,
you would need an outlook shift from Fed members such as Dudley. At
least today, no such shift was seen," noted Dan Greenhaus, chief
global strategist at BTIG LLC, in emailed commentary.
In Britain, Fed Chairman Ben Bernanke told the London School of
Economics that low interest rates in developed countries helps the
global economy while not disrupting trade via weaker
currencies.
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