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Wall Street recovers from swoon set off by Cyprus
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NEW YORK (AP) — Stocks were little changed on Wall Street after recouping losses from an early sell-off caused by concern that a bailout plan for the Mediterranean island nation of Cyprus would reignite the European debt crisis.
The Dow Jones industrial average bounced back from an early swoon of nearly 110 points and was down nine points, or 0.1 percent, at 14,506 as of 2:39 p.m. EDT.
The Standard & Poor’s 500 index was down three points, or 0.2 percent, to 1,557. The Nasdaq composite dropped two points, or 0.1 percent, to 3,247.
European markets also recovered from an early slide and closed with modest losses, indicating that investors were taking the Cyprus developments in stride. Yields on government bonds issued by Spain and Italy edged higher, and the euro fell to a three-month low against the dollar.
Concerns persist about the euro region’s lingering debt crisis, despite a strong rally in stocks since the start of the year that pushed the Dow to record highs. The index fell 1.6 percent Feb. 25, its biggest wobble this year, after elections in Italy threw the country into political paralysis, endangering crucial economic reforms.
“Europe has got problems,” said Uri Landesman, president of Platinum Partners, a hedge fund. “You could get more stuff like this, and the market isn’t priced to handle that.”
A weekend agreement between Cyprus and its European partners called for the government to raid bank accounts as part of a 15.8 billion euro ($20.4 billion) financial bailout, the first time in the eurozone crisis that the prospect of seizing individuals’ savings has been raised.
The proposal roiled international markets, and the measures are stoking fears of bank runs in the other 16 nations that use the euro.
Markets in Europe and Asia also fell during early trading before retracing some of their losses later in the day. Germany’s DAX index dropped 0.4 percent, and Spain’s main index of stocks shed 1.3 percent. Indexes in Britain and France each lost 0.5 percent, recovering from steeper declines early in the day.
The euro fell a penny against the dollar to $1.29, touching its lowest in three months. Gold climbed $12 to $1,604.50 an ounce.
The yield on the 10-year U.S. Treasury bond, which moves inversely to its price, fell to 1.96 percent from 1.99 percent as investors moved money into low-risk investments. Yields on bonds issued by Spain and Italy, the two most vulnerable large European economies, rose, but only slightly. Spain’s benchmark 10-year yield rose to 4.97 percent from 4.91 percent, and Italy’s rose to 4.57 percent from 4.55 percent.
The stock market’s rebound suggests that traders consider the Cyprus situation to be contained for now, said Quincy Krosby, a market strategist for Prudential. The threat of rising volatility also may deter the Federal Reserve from thinking about ending its economic stimulus program. The central bank starts its second two-day policy meeting of the year on Tuesday.
“Absent of the Cyprus flare-up, the markets were slowing a bit, and it looked as if investors were digesting the gains and waiting for the next catalyst,” Mr. Krosby said.
Financial stocks were the biggest decliners in the S&P 500. Investment bank Morgan Stanley fell 48 cents, or 2 percent, to $23.11. Citigroup dropped $1.03 to $46.23.
Goldman Sachs said Monday that it had lifted its end-of-year target for the S&P 500 to 1,625 from its previous target of 1,575. The investment bank is forecasting that the U.S. economy will grow 2 percent this year and 2.9 percent next year. It also predicts that corporate deals and dividend payments will increase.
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