U.S. stocks drop on BP’s slump, euro up

By Manuela Badawy

NEW YORK (BestGrowthStock) – U.S. stocks (Read more about the stock market today. ) ended lower on Wednesday dragged down by energy shares, after upbeat comments by Federal Reserve Chairman Ben Bernanke on the health of the U.S. economy failed to sustain an early rally in world stocks.

The late retreat stocks triggered a bid for safe-haven assets which pushed U.S. government bonds into positive territory, while the euro edged higher boosted by demand for options.

BP Plc’s (BP.L: ) (BP.N: ) stock price plunged 15.8 percent — shedding $17 billion in market capitalization on the day — as it faced more U.S. government and congressional scrutiny over its handling of the Gulf of Mexico oil spill, the worst in U.S. history.

Earlier Fed chairman Bernanke, in testimony to the U.S. House of Representatives Budget Committee, said the U.S. economic recovery appeared to be on solid footing and that while a double-dip recession “can never be entirely ruled out,” he expected the economy to continue growing.

The Federal Reserve’s Beige Book on regional U.S. economic conditions showed economic improvement across the country from late April to May, yet it said there were worries over the effect of Europe’s sovereign debt crisis on the U.S. economy.

“Folks don’t want to go home with any risk. You are seeing a (comeback) of the safety trade,” said Evan Moskovit, head of U.S. fixed income at Sun Capital Advisers in Wellesley, Massachusetts.

The Dow Jones industrial average (.DJI: ) fell 40.73 points, or 0.41 percent, to end unofficially at 9,899.25. The Standard & Poor’s 500 Index (.SPX: ) lost 6.35 points, or 0.60 percent, to finish unofficially at 1,055.65. The Nasdaq Composite Index (.IXIC: ) slipped 11.72 points, or 0.54 percent, to close unofficially at 2,158.85.

BP shares closed at $29.20, their lowest since August 1996, wiping about 50 billion pounds ($72 billion) off its market capitalization. BP shares trading in New York fell on growing worries about the costs the energy giant will have to assume because of the spill.

“You hear this unease over solvency and/or a dividend suspension at BP, and I think it’s hurting the tone of the market,” said Nick Kalivas, senior equity index analyst at MF Global in Chicago.

BP officials have said they have enough cash to handle the crisis, but the cost of protecting BP’s debt against default hit record highs, suggesting increased worry about the British oil giant’s ability to handle its obligations.

World stocks had traded in positive territory earlier in the day as Chinese exports grew 50 percent in May from a year earlier, according to sources, well above expectations for growth of 32 percent.

The unofficial data was seen as a sign that the economy of the world’s second-largest oil user was roaring ahead. China is to release the official export data Thursday as part of broader trade report.

The euro rose from multi-year lows for a second straight day, boosted by renewed optimism that Europe’s debt crisis will not put the brakes on global growth, and as traders continued to book profits following the currency’s slide.

The euro was 0.03 percent higher at $1.976, after falling below $1.19 Monday, its weakest since 2006. The euro has shed nearly 16 percent against the U.S. dollar so far this year.

Few were ready, however, to declare the currency’s woes over. Banks’ overnight deposits at the European Central Bank hit a record Wednesday, highlighting widespread worries about the health of the financial system.

Traders said option expiries at $1.1900 and $1.1850 added to euro demand as investors bought the currency to protect their positions.

Steven Butler, head of FX trading at Scotia Capital, said while the euro in the short term could reach $1.2110, his longer-term view is more pessimistic. “I still think there’s downside,” he said.

“And overall, this move over the past few months has seen new lows hit, then consolidation and a nasty bounce back before we make another assault downward.”

Investors were also awaiting a European Central Bank policy meeting Thursday to see if the ECB will announce fresh steps to ease strains from the euro zone’s debt crisis.

The ECB is also expected to publish a new set of economic forecasts for the region that are likely to signal somewhat stronger activity, despite worries that debt problems and government austerity measures will sharply brake growth.

Nagging concerns over the fiscal woes of Greece, Spain and weaker euro zone nations and the pace of the United States’ economic recovery spurred bidding for $21 billion worth of 10-year notes, part of this week’s $70 billion in longer-dated Treasury securities.

The U.S. Treasury will conclude this week’s supply on Thursday with a $13 billion auction of 30-year bonds.

The benchmark 10-year U.S. Treasury note was up 2/32, with the yield at 3.182 percent. The 2-year U.S. Treasury note was up 1/32, with the yield at 0.722 percent. The 30-year U.S. Treasury bond was up /32, with the yield at 4.1139 percent.

Crude oil prices ended about 3.0 pcdt percent to $74.38 a barrel, as U.S. data that showed a hefty drawdown in crude oil inventories added to the picture of rising demand.

Risk-averse investors have streamed into gold this week, sending prices for the precious metal to a record high in U.S. dollars, on persistent fears that the euro zone debt problems will spread.

Stock Market Today

(Additional reporting by Richard Leong, Steven C. Johnson, Vivianne Rodrigues, Rodrigo Campos)

U.S. stocks (Read more about the stock market today. ) drop on BP’s slump, euro up