* U.S. manufacturing shrinks for third straight month
* ECB bond-buying hopes cut Spanish and Italian bond yields
* U.S. markets reopen after long holiday weekend
By Luciana Lopez
NEW YORK, Sept 4 U.S. stocks slid on Tuesday in
the first session after a long holiday weekend as disappointing
data underscored weakness in the world's largest economy, but
hopes for European Central Bank bond-buying nudged Spanish and
Italian yields lower.
U.S. equity indexes fell after data showed U.S.
manufacturing shrank at the sharpest clip in more than three
years in August and construction spending fell in July by the
most in a year.
The U.S. dollar also trimmed gains against the euro after
the data, as some analysts saw the U.S. Federal Reserve moving
to prop up the economy.
"This soft report leading into Friday's payrolls will only
solidify additional action from the Fed if we see another soft
jobs report," said Tom Porcelli, chief U.S. economist at RBC
Capital Markets in New York.
The Dow Jones industrial average dropped 97.28
points, or 0.74 percent, at 12,993.56. The Standard & Poor's 500
Index was down 8.26 points, or 0.59 percent, at 1,398.32.
The Nasdaq Composite Index was down 18.10 points, or
0.59 percent, at 3,048.87.
The euro was off 0.18 percent against the dollar to $1.2570,
after having risen as high as $1.2627 earlier in the session.
Investors were also eyeing possible action across the
Atlantic from the European Central Bank, with hopes for more
bond buys from the ECB helping drive Spanish and Italian bond
yields to multi-week lows.
Spanish two-year yields dropped to 3.118
percent, the lowest since early April, while their Italian
counterparts fell to 2.425 percent, the lowest
since late March.
The benchmark 10-year U.S. Treasury note was
down 2/32, with the yield at 1.5535 percent.
The ECB is expected to unveil a new debt-purchasing scheme
to tackle the region's debt crisis at a policy meeting o n
Th ursday, when it may also cut interest rates as the 17-nation
euro area heads toward a recession.
Mario Draghi, the ECB's president, told European lawmakers
o n M onday that buying short-term sovereign debt did not breach
any European Union rules, which investors took as a sign the
bank would resume purchases of short-dated Spanish and Italian
"Markets are taking a bit of confidence from Draghi, who
apparently indicated that purchases of up to three years
maturity wouldn't be in contravention of EU policies on
financing of sovereigns," said Brian Barry, a strategist at
Still, European equity investors have turned more cautious
over the impact of the ECB plan, having enjoyed a strong rally
since Draghi pledged on July 26 to do "whatever it takes" to
protect the euro from the crisis.
The FTSEurofirst 300 index of top European stocks,
which has risen 7 percent since late July, was down 1.09 percent
"If the ECB disappoints, the reaction would be on the
negative side. But I don't expect a dramatic sell-off as focus
will shift to other events," said Christian Stocker, equity
strategist at UniCredit.
The MSCI world equity index, which gained
late last week on renewed hopes of more monetary stimulus by the
Federal Reserve, was down 0.74 percent at 320.33.
Oil prices fell below $115 per barrel on Tuesday as renewed
fears about weaker demand outweighed hopes of further stimulus
measures from central banks in the United States and Europe.
Front-month Brent crude futures were down $1 to
$114.78 a barrel by 1413 GMT. U.S. crude futures were
down 89 cents to $95.58 a barrel from Friday's settlement.