Friday, March 27, 2009

Stocks slide after weak government debt auction

Stocks slide after weak government debt auction
Stocks slide after lackluster demand for US debt stirs worries about economic recovery plans
Tim Paradis, AP Business Writer
Wednesday March 25, 2009

NEW YORK (AP) -- Stocks lost ground Wednesday after a weak auction of U.S. government debt stirred worries about how easily Washington will be able to raise money to fund its economic rescue program.

Investors gave an unexpectedly cool response to a $24 billion auction of 5-year Treasury notes Wednesday, just a day after a $40 billion auction of 2-year notes suggested strong demand. Treasury prices also declined following the auction.

The government is running up record deficits in order to fund an array of plans to provide stimulus to the economy and support to the ailing financial system. Any suggestion that demand for U.S. government debt is weakening would be negative for stocks.

The market had been higher earlier in the day on enthusiasm over economic reports showing increased demand for big-ticket manufactured goods and higher sales of new homes. Both readings came in better than forecast.

In late afternoon trading, the Dow fell 108.08, or 1.4 percent, to 7,551.89. The Dow had been up about 200 points at its high of the day. The blue chips fell nearly 116 points on Tuesday and surged almost 500 on Monday.

Broader stock indicators also turned lower. The Standard & Poor's 500 index fell 14.83, or 1.8 percent, to 791.42, and the Nasdaq composite index fell 27.98, or 1.9 percent, to 1,488.54.

The Russell 2000 index of smaller companies fell 6.86, or 1.7 percent, to 409.92.

About two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.15 billion shares.

Bond prices fell after the auction. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.77 percent from 2.71 percent late Tuesday. The yield on the three-month T-bill rose to 0.19 percent from 0.17 percent Tuesday.

The dollar fell against other major currencies, while gold prices rose.

Jim King, chief investment officer at National Penn Investors Trust Co. in Reading, Pa., said investors are concerned about how well the government's plan to help banks remove bad assets from their books will work.

Stocks had jumped Monday as the plan was announced but then fell back on Tuesday. Now, the weak auction results are only adding to fears that an economic recovery could be more difficult.

"It's kind of feeding into the overall malaise that the market is experiencing following the big pop we got a couple of days ago," King said.

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