By CHIP CUTTER
NEW YORK – So much for a comeback in the stock market.
Stocks fell sharply Wednesday, giving up all of their gains from the day before, as investors became increasingly concerned about the worsening debt crisis in Greece. The dollar rose against the euro and U.S. government bond prices climbed as investors sought out safer assets. The yield on the 10-year Treasury note, which moves opposite its price, fell below 3 percent.
A report on manufacturing in the New York area also came in far below forecasts. That reignited fears that factory production, one of the few bright spots in the U.S. economy, may be weaker than many economists had believed.
The new jitters about Greece and what it might mean for the global financial system wiped out optimism from the day before, when stock indexes posted their biggest gains so far in June on better-than-expected retail sales.
“It’s sell and ask questions later,” said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn.
In afternoon trading, the Dow Jones industrial average fell 161 points, or 1.3 percent, to 11,914, giving up its 123-point gain from Tuesday. The Dow has only had three days of gains in June.
The Standard & Poor’s 500 index fell 19, or 1.5 percent, to 1,268. The Nasdaq composite index fell 31, or 1.2 percent, to 2,647.
Thousands of people gathered on the streets of Athens to protest government cutbacks required to avoid a default on the government’s debt. Demonstrators hurled rocks at riot police, who responded with tear gas.
In the latest sign of how Greece’s problems could affect other countries, credit ratings agency Moody’s said it may downgrade its ratings of France’s three largest banks because of their exposure to Greek debt.
Greece’s fiscal problems appeared to be solved a year ago with a package of emergency loans, but it became clear this spring that the country would need more help from its European neighbors to avoid a default. On Monday, Standard & Poor’s slashed Greece’s creditworthiness to the bottom of the 131 countries that have ratings.
Worries about Greece have contributed to a drop in U.S. stocks since late April. The S&P 500 is down 7 percent from its peak on April 29. If Greece defaults on its debt, it would cause borrowing costs for other debt-ridden European countries like Spain and Portugal to soar as investors shun their debt. That could slow economic growth across the continent and throughout the rest of the world.
A Greek default could also put pressure on U.S. companies that do much of their business overseas. U.S. corporations have benefited from a weak dollar, which has made their exports more competitive in global markets.
The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.99 percent from 3.10 percent late Tuesday. That signaled a greater demand for low-risk investments. The euro weakened to $1.42 against the dollar from $1.44 late Tuesday, the weakest level for the European currency since May 30.
The June Empire State Manufacturing Survey came in well below forecasts. The survey from the New York Federal Reserve found that conditions for New York manufacturers are weakening and new orders are falling. A measure of optimism among factory owners in the state fell to its lowest level since early 2009.
The government also reported that consumers paid slightly more for food, cars and housing last month. “Core” prices, which exclude food and energy, rose by the most in nearly three years. Higher inflation could cause problems for the economy if it discourages retail spending, a major engine for the U.S.
Analysts said investors should expect stock trading to be volatile as uncertainty about the economy persists. The housing market remains weak and the jobs market is sluggish. Questions loom about whether lawmakers will support raising the nation’s borrowing limit by an Aug. 2 deadline. The Federal Reserve’s $600 billion bond-buying program is also winding down at the end of June. The program was designed to keep interest rates low to encourage borrowing.
“The markets are nervous, investors are nervous, and so we expect volatility,” said Oliver Pursche, president of Gary Goldberg Financial Services.
The Dow is down 5 percent this month, while the S&P and Nasdaq are both down 6 percent.
Pandora Media Inc. jumped 26 percent to $20.21 on its first day of trading. The Internet radio company priced its initial public offering at $16 a share, the high end of its range, reflecting hot demand for online companies. Professional networking site LinkedIn soared on its first day of trading last month, but has since fallen 19 percent.
Owens-Illinois Inc. fell 11 percent after the glass container company cut its second-quarter earnings outlook because it is facing higher manufacturing and delivery costs.
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