NEW YORK (Reuters) - Shares of U.S. banks slumped on Friday after JPMorgan said it lost billions of dollars on bad trades, but the overall market ended only modestly lower, thanks to gains in technology shares.
JPMorgan Chase & Co (JPM.N), the largest U.S. bank by assets, dropped 9.3 percent on record high volume after it disclosed losses on derivatives trades. The news sparked fears that the problems could reverberate through the banking sector. The KBW bank index .BKX fell 1.2 percent.
“JPMorgan will become a political issue. This will increase regulations on banks, and the overhang on large banks will last for awhile,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York.
JPMorgan’s shares fell to $36.96, and trading volume was around 216.7 million shares on Friday.
Wall Street ended lower for the second week in a row, as concerns about Europe’s fiscal health resurfaced as political turmoil in Greece again sparked worry that it could exit the euro and Spain’s ailing banks spurred fears the country could need a bailout, while some U.S. economic data raised questions about growth.
But a survey released on Friday showed U.S. consumer sentiment rose to a more than four-year high in early May as Americans remained upbeat about the job market. The survey was a welcome sign amid worries that the economic recovery may be slowing down.
The Nasdaq finished higher, outperforming the broader market. Shares of chip maker Nvidia Corp (NVDA.O) rose 6.4 percent to $13.21 after quarterly results beat expectations. The stock boosted the Nasdaq and was the S&P 500’s top percentage gainer.
Other chip stocks also rose, with the Philadelphia Semiconductor index .SOX up 0.73 percent. Also in the tech sector, shares of Netflix (NFLX.O) jumped 6.8 percent at $77.38.
The Dow Jones industrial average .DJI was down 34.44 points, or 0.27 percent, at 12,820.60. The Standard & Poor's 500 Index .SPX was down 4.60 points, or 0.34 percent, at 1,353.39. The Nasdaq Composite Index .IXIC was up 0.18 points, or 0.01 percent, at 2,933.82.
Chesapeake Energy Corp (CHK.N) shares fell 13.9 percent to $14.80 after the company said it may delay assets sales in order to preserve cash flow needed to comply with requirements of its corporate credit facility.
For the week, the Dow fell 1.7 percent, the S&P fell 1.1 percent, and the Nasdaq was off 0.8 percent.
Marc Pado, a U.S. market strategist at DowBull.com in San Francisco, said traders had helped support the market by closing short positions - bets that stocks will fall - after gains at the start of May.
“The trader types see that we came down to that 1,340 area on the S&P 500, started to bounce, started to see some buying, some bottom fishing, then you got that consumer sentiment number, and that was compelling enough,” he said.
The disclosure by JPMorgan came as shocking news by a bank viewed as a strong risk manager.
JPMorgan estimates the business unit involved in the trading loss will lose $800 million in the current quarter, excluding private equity results and litigation expenses. The bank had previously expected the unit to post a profit of about $200 million.
Jamie Dimon, JPMorgan’s chief executive, cautioned that losses could grow by another $1 billion, another hurdle for a sector already besieged by the sovereign debt crisis in Europe and fears of slowing growth globally.
The news weighed on bank shares as investors feared both a greater risk of more regulation and the potential for more such losses at other banks. The stocks, however, came off their lows of the morning.
Financial stocks have been among the most volatile in recent months as investors question what the growth outlook for the United States and the European debt crisis will mean for the group’s profits. JPMorgan has fallen 14 percent this month.
The CBOE VIX Volatility Index rose nearly 16 percent for the month in a sign of growing caution.
Thomson Reuters/University of Michigan’s preliminary consumer confidence index for May improved to a reading of 77.8 from 76.4 in April, topping forecasts of 76.2.
Of the 453 companies in the S&P 500 that have reported earnings to date for the 2012 first quarter, 66.2 percent have reported earnings above analysts’ expectations, according to Thomson Reuters data. That compares with more than 80 percent at the start of earnings season and is below the average for the past 4 quarters of 68 percent.
Shares of Arena Pharmaceuticals Inc (ARNA.O) jumped 74 percent to $6.36 after a panel of experts recommended approval of the company’s obesity pill, a big step toward making it the first new diet drug on the U.S. market in more than a decade. The stock was the most actively traded on the Nasdaq composite.
Volume was about 6.47 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE Amex, above the daily average of around 6.8 billion.
Editing by Leslie Adler