US STOCKS-Fed policy, China growth worry send Wall St lower

Mon Jun 24, 2013 10:25am EDT

* Tenet Health to buy Vanguard Health for $4.3 bln

* Mining stocks drag as gold falls

* Keynote Systems to be acquired for $20 per share

* Indexes off: Dow 1.1 pct, S&P 1.38 pct, Nasdaq 1.35 pct

By Chuck Mikolajczak

NEW YORK, June 24 (Reuters) - U.S. stocks extended losses on Monday, falling more than 1 percent after the S&P 500 index's biggest weekly decline in two months, as investors repriced shares in the wake of the Federal Reserve's plans to withdraw its stimulus.

Investor sentiment also was hurt by a cash crunch in China, which could further slow Chinese growth. Markets in Shanghai and Hong Kong suffered heavy losses..

Concerns the Fed may be planning to reduce its stimulus pushed up yields on 10-year Treasuries to more than 2.6 percent, its highest level since August 2011, prompting strength in the dollar, which in turn dented commodity prices.

The NYSE Arca gold bugs index lost 3.2 percent and the PHLX gold/silver sector index fell 2.9 percent.

Banking shares in China tumbled to their biggest daily loss in almost four years after the People's Bank of China said banks needed to do a better job of managing their cash and lending as the central bank attempts to move the world's second largest economy away from credit-driven investment.

The S&P 500 has fallen 3.7 percent in June, putting the benchmark S&P index on track for its worst monthly performance since May 2012. The index is down 5.9 percent from its all-time closing high on May 21.

"We are starting to see that follow-through in Asia, which is all part of the broader narrative - the focus on a lack of stimulus, a creeping higher in rates and the potential impact for less liquidity globally," said Peter Kenny, chief market strategist at Knight Capital in Jersey City, New Jersey.

"Markets should be pricing in less liquidity and we are getting a reset and the reset is definitely expected. It's necessary and if it's managed well it could very well be an opportunity."

The Dow Jones industrial average dropped 163.25 points, or 1.10 percent, to 14,636.15. The Standard & Poor's 500 Index lost 22.02 points, or 1.38 percent, to 1,570.41. The Nasdaq Composite Index declined 45.17 points, or 1.35 percent, to 3,312.07.

U.S. hospital operator Tenet Healthcare Corp will buy smaller rival Vanguard Health Systems Inc for $4.3 billion or $21 per share including debt to expand into new geographies. Vanguard shares jumped 66.9 percent to $20.64 and Tenet gained 9.6 percent to $45.86.

Barrick Gold Corp will lay off up to a third of its corporate staff at its Toronto headquarters and other offices, sources said, as the world's top bullion producer intensifies downsizing amid a slump in the price of gold. U.S.-listed shares dipped 4.4 percent to $16.15.

Keynote Systems Inc said it had agreed to be acquired by an affiliate of private equity firm Thoma Bravo LLC for about $395 million, or $20 per share. Keynote shares surged 46.3 percent to $19.77.

STEC Inc jumped 86.9 percent to $6.71 after Western Digital Corp said it would buy the company for about $340 million in cash. Western Digital shares shed 1.7 percent to $59.18.

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