November 9, 2010 / 9:53 AM / 9 years ago

Stocks drop after late sell-off

NEW YORK (Reuters) - Wall Street fell for a second day on Tuesday as selling accelerated into the close, led by sharp losses in bank and metal stocks.

Traders work on the floor of the New York Stock Exchange November 8, 2010. REUTERS/Brendan McDermid

In a market ripe for profit-taking, sellers had a number of triggers late in the session to unload shares. The biggest negatives were a sudden decline in the euro and a late-day slump in the Treasury market.

Financial stocks, which were already soft, were hit harder as interest rates rose late in the day. Metals and energy stocks, which had been the standout performers, gave up earlier gains after the price of several commodities suddenly fell from lofty levels.

“Commodities were very strong this morning and the leaders of the market,” said Nick Kalivas, senior equity index analyst at MF Global in Chicago.

“As the dollar firmed through the day, it’s undercut some of that commodity strength.”

An index of gold and silver miners’ shares .XAU fell 2.6 percent after hitting an all-time high earlier in the day.

Shares of the iShares Silver Trust (SLV.P), an exchange-traded fund that tracks the price of silver, fell 3.7 percent on massive volume as more than 150 million shares changed hands, nearly 10 times the average daily volume over the last 50 days.

Earlier in the day, CME Group said it was increasing the margin requirements for silver futures contracts to $6,500 from $5,000. The price of silver fell from a 30-year high earlier in the day.

“The down move was most likely in response to the CME raising margin requirements on silver futures contracts,” said Steve Place, a founder of investingwithoptions.com in Mobile, Alabama, in reference to the nearly 30 percent increase in margin requirements for silver futures.

“As there was a lot of speculative money in silver,” he added, “this led to leveraged longs being forced to sell to reduce margin exposure. This supply fed on itself, which in turn, led to sharp selling across the board in the precious metals futures complex.”

The Dow Jones industrial average .DJI slid 60.09 points, or 0.53 percent, to 11,346.75. The Standard & Poor's 500 Index .SPX dropped 9.85 points, or 0.81 percent, to 1,213.40. The Nasdaq Composite Index .IXIC lost 17.07 points, or 0.66 percent, to close at 2,562.98.

Early in the day, U.S. gold futures hit a record $1,424.30 an ounce. It was a fourth straight day of record levels.

The dollar index .DXY, on the other hand, rose about 1 percent against a basket of major currencies in late afternoon trade.

REITS ON A YIELD SEESAW

Financial stocks, which helped drive gains last week, led the S&P 500’s decline for a second day. The S&P financial index .GSPF slid 2.2 percent. Bank of America (BAC.N) fell 2.6 percent to $12.27, weighing the most. percentage-wise, on the Dow industrials.

A Dow Jones index of real estate investment trusts .DJR, or REITs, fell 3.9 percent. REITs “are a yield play, to a degree, and you see yields are moving higher today, actually aggressively higher,” said Rick Campagna, portfolio manager at 300 North Capital LLC in Pasadena, California.

“You look at the long bond, or any of the bonds, all of the rates are up, so bonds are down. So to the extent that people are looking at the REITs (real estate investment trusts) as a yield play, there is some correlation there.”

The S&P 500 added 3.6 percent last week, its fifth straight week of gains.

Investors came into the week ready to book profits from the rally that took stocks last week to their highest levels since September 2008 after the Federal Reserve’s announcement of its stimulus plan to help the ailing economy. The dollar, which has had an inverse relationship with stocks lately, fell to multi-month lows.

“We basically had a straight line up (in stocks) since September and we didn’t even have a 2 percent or more correction yet. I think the dips are actually healthy for the market,” said Stephen Massocca, managing director in Wedbush Morgan in San Francisco.

Investors have seen gold as an inflation hedge following the Fed’s announcement last week that it would buy $600 billion in government debt in an effort to stimulate the sluggish U.S. economy, and the view has bolstered commodity shares.

Deal news supported shares of Yahoo Inc YHOO.O, up 3.2 percent at $16.97, after a report it may be a takeout target.

Elsewhere on the merger front, Atlas Energy Inc ATLS.O surged 34 percent to $42.50 after Chevron Corp (CVX.N) said it will buy the U.S. natural gas producer, giving Chevron a stake in the fast-growing Marcellus shale field.

Chevron slipped 1.5 percent to $83.56 and was the top drag on the Dow.

Trading volume was about 8.9 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq, compared with the year-to-date daily average of 8.72 billion.

About 11 stocks fell for every 4 that rose on the New York Stock Exchange, while on the Nasdaq, about 19 stocks fell for every 7 that advanced.

Reporting by Angela Moon; Additional reporting by Doris Frankel and Leah Schnurr; Editing by Jan Paschal

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