Consumer confidence slump hits stocks

By Daniel Bases

NEW YORK (BestGrowthStock) – Shares fell across the globe on Tuesday as falling U.S. consumer confidence and house prices suggested the economy was still fragile, while German business confidence dropped unexpectedly for the first time in almost a year.

The yen rose against the dollar, while the dollar gained against the euro as investors sought safety. The dollar’s strength dragged down commodities, pulling crude oil prices from six-week highs to below $80 a barrel and left spot gold prices weaker, hovering just above $1,100 an ounce.

Prices of U.S. Treasuries, a traditional safe-haven, shot up as investors who had been preparing for declining prices ahead of this week’s Treasury auctions scrambled to cover their positions. Solid demand for the $44 billion in two-year notes auctioned helped to extend gains for U.S. Treasuries.

MSCI’s All Country World stock index (.MIWD00000PUS: ) fell 1.09 percent from an earlier three-week high, and major indexes in the United States and Europe all fell around 1 percent.

In the United States, consumer confidence slumped in February to a 10-month low on concerns about business conditions and the weak job market.

“There’s a bit of an adjustment process in terms of the growth outlook as to what is going to be the major driver,” said Nick Kalivas, vice president of financial research and senior equity index analyst at MF Global in Chicago.

“The consumer does not look to be the major driver. It’s going to be more business-driven. Given the unease about the consumer and the government sector, businesses may not be that willing to do a lot of spending.”

The closely watched Standard & Poor’s/Case-Shiller indexes added to the gloom on the economic outlook with a surprising drop in December U.S. home prices, although the annual rate of decline slowed.

The Dow Jones industrial average (.DJI: ) slipped 100.97 points, or 0.97 percent, to 10,282.41. The Standard & Poor’s 500 Index (.SPX: ) gave up 13.41 points, or 1.21 percent, at 1,094.60. The Nasdaq Composite Index (.IXIC: ) was off 28.59 points, or 1.28 percent, to 2,213.44.

Stocks associated with a strong cyclical upturn in the economy were hit. Top performers during last year’s rally, including technology, materials and energy stocks led the downside.

Chipmaker Intel Corp (INTC.O: ) dropped 2.4 percent to $20.38 and the PHLX semiconductor index (.SOXX: ) lost 2.8 percent.

European shares were hurt both by the data on German business sentiment and the U.S. data. The pan-European FTSEurofirst 300 (.FTEU3: ) index closed down 1.13 percent at 1,011.62 points, with banks the worst performers.

EURO ZONE WOES

Germany’s much watched Ifo business climate index fell as a result of harsh winter weather that weighed on the construction and retail sectors and hinted Europe’s largest economy could revert to contracting in the first quarter.

The Ifo institute’s business climate index fell to a reading of 95.2 in February, lower than forecasts for 96.1.

And a Fitch Ratings credit downgrade of Greece’s four largest banks reminded investors of the fiscal problems in Athens and the lack of clarity from the euro zone on how it might aid one of its members.

The U.S. dollar rose versus major currencies as measured by the ICE Futures Exchanges’s dollar index (Read more about the global trade. ) (.DXY: ), which was up 0.53 percent at 80.936 from the prior session close of 80.507. Against the yen, the dollar fell 0.98 percent to 90.23 yen.

The euro at one point dropped below $1.35 before edging back up to $1.3508, a loss of 0.65 percent on the day. It traded just above a nine-month low against the greenback.

Sterling fell 0.45 percent to $1.5412 after Bank of England chief Mervyn King said in parliamentary testimony that the central bank could increase quantitative easing if the economy worsens and the recovery remained fragile. The BoE paused its 200 billion sterling asset buying program earlier this month.

U.S. Treasury bond prices rose on the weak U.S. data. The benchmark 10-year U.S. Treasury rose 28/32 of a point in price to yield 3.693 percent.

“Bonds made a rocket shot on this shocking, unexpected turn of events in the consumer confidence data,” said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.

The Treasury’s two-year note auction had investors eager to sop up the shorter-dated debt in their hunt for lower risk assets. The Treasury will sell $42 billion of five-year notes on Wednesday.

Also on Wednesday, Federal Reserve Chairman Ben Bernanke will testify to Congress on the central bank’s stimulus exit strategies, though speculation of a near-term rise in U.S. interest rates stemming from the U.S. central bank’s hike in the discount rate last week has cooled.

In Europe, German two-year government bond yields touched a euro-lifetime low of 0.906 percent.

U.S. light sweet crude oil fell $1.45, or 1.81 percent, to settle at $78.86 per barrel, and spot gold prices lost $12.25, or 1.10 percent, to $1,101 an ounce.

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(Additional reporting by Lynn Adler, Luciana Lopez, Steven C. Johnson, Rodrigo Campos, Ellen Freilich, Leah Schnurr in New York; Tamawa Desai, Atul Prakash and Jessica Mortimer in London; Paul Carrel in Berlin; Editing by Leslie Adler)

Consumer confidence slump hits stocks