Dow falls 297 as Greek turmoil batters stocks

Updated: 3:15 a.m. ET

Stocks slumped Tuesday for the second day in a row as a plan for Greece to hold a referendum on the terms of its financial rescue threatened to scuttle Europe's grand bailout plan.

U.S. stocks were down more than 2.4% on the news, with the Dow Jones industrials ($INDU) briefly off more than 300 points. German and French stocks fell more than 5%, and British stocks tumbled more than 2%.

Despite all the worry about Greece and European Union, Wednesday appears to be setting up for a rebound rally. Futures trading suggests the Dow will open up more than 80 points, with the Standard & Poor's 500 Index ($INX) rising nine points.

Tuesday's market rout was prompted by Greek Prime Minister's George Papandreou's proposal to let Greeks vote on the austerity plans required to comply with its financial rescue took markets entirely by surprise -- not to mention the eurozone nations that had labored deep into the night last week to craft the plan. Papandreou's decision may lead to a collapse of his government, the Guardian newspaper reported, causing more turmoil across the continent. He faces a vote of confidence on Friday.

The Dow closed down 297 points, or 2.5%, to 11,658; the blue chips had been down as many as 321 points. The S&P 500 was off 35 points, or 2.8%, to 1,218, and the Nasdaq Composite Index ($COMPX) had fallen 77 points, or 2.9%, to 2,607.

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Adding to the market's stress Tuesday were October sales reports that missed estimates from General Motors (GM) and Ford Motor (F), as well as slumping commodity markets in the wake of MF Global's bankruptcy filing on Monday. Gold (-GC) briefly dropped below $1,700 an ounce; crude oil (-CL) in New York fell to as low as $89.17 a barrel.

The Dow has fallen 4.7% in two days of trading, with the S&P 500 off 5.2% and the Nasdaq down 4.8%. The two-day losses were the worst since Sept. 21-22.

The sell-off came after a strong performance for U.S. stocks in October. It comes ahead of a Federal Reserve decision on monetary policy due Wednesday morning. (Chairman Ben Bernanke will hold a news conference afterward.)

 

Also due Wednesday are the ADP National Employment Report, which is a measure of private-sector employment trends, the Challenger Gray Christmas report on layoffs and the weekly report on oil inventories.

 

Earnings results due include reports from Kraft Foods (KFT), News Corp. (NWSA), MasterCard (MA), Time Warner (TWX) and Transocean (RIG).

Here's a little something to cheer about: The S&P 500's 2.8% decline was not the worst for the first day of November trading in the index's history. The worst was a 5.26% decline in 1929, followed by a 2.87% decline in 1932.

To rank among the 10 worst days on the first day of any month would have required a 2.97% decline, according to Standard & Poor's Howard Silverblatt.

 

Pfizer is the one Dow stock to show a gain
Only one of the 30 Dow stocks was higher Tuesday: pharmaceutical giant Pfizer (PFE), up 0.4% to $19.33. Pfizer's third-quarter results came in much better than expected, as sales of its medicines accelerated in emerging markets and in the nutritional products and animal health businesses it plans to divest.

The drugmaker raised its full-year 2011 profit forecast to $2.24 to $2.29 a share after one-time charges. It also reaffirmed its projection of $2.25 to $2.29 a share in earnings for 2012. That's even after ceding sales from its $10 billion-a-year Lipitor cholesterol fighter once cheaper generics begin flooding U.S. pharmacies on Nov. 30.

Meanwhile, only 20 S&P 500 stocks were higher, led by online travel site Expedia (EXPE), up 4.3% to $27.38.

All 10 sectors of the S&P 500 were lower. The best performers, relatively speaking, were utility stocks, a reflection of their ability to pay dividends. Financial, energy and industrial stocks were the market's weakest sectors.

Expedia was the top stock in in the Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks. The other gainers were Seagate Technology (STX), up 1.8% to $16.25, O'Reilly Automotive (ORLY), up 0.5% to $76.45, and Costco Wholesale (COST), up 0.1% to $83.35.

The index was off 62 points, or 2.6%, to 2,298. Apple (AAPL), down 1.6% to $398.40, was responsible for five points of the index's loss.

Energy prices -- New York close
			Tues.			Mon.			Month chg.			YTD chg.
Crude oil (-CL)			$92.19			$93.19			-1.07%			0.89%
(per barrel)
Heating oil (-HO)			$3.0379			$3.0583			-0.67%			19.43%
(per gallon)
Natural gas (-NG)			$3.7810			$3.9340			-3.89%			-14.17%
(per mil. BTU)
Unleaded gasoline (-RB)			$2.6244			$2.6057			0.72%			6.98%
(per gallon)
Brent crude			$109.54			$109.56			-0.02%			15.61%
(per barrel)
Retail gasoline			$3.4370			$3.4430			-0.17%			11.88%
(per gallon; AAA)

Treasury yields drop on Greek worries
The Greek situation sent many investors scurrying for safety on Tuesday. The euro fell 1.25% against the dollar. Treasury yields dropped; the 10-year Treasury yield fell to 2% from Monday's 2.175%.

Gold, meanwhile, settled down $13.40 to $1,711.80 an ounce after falling to as low as $1,681.20 an ounce. Silver (-SI) settled down $1.623, or 4.7%, to $32.266 an ounce.

Copper(-HG) dropped 13 cents to $3.5025 a pound. But the decline had more to do with a report suggesting a continuing trend of slowing growth in China.

Light sweet crude oil in New York settled down $1, or 1.1%, to $92.19 a barrel, a bit of an improvement over this morning when it hit $89.17. Brent, the benchmark North Sea crude, was down $2.85 to $106.71. The spread between U.S. crude and Brent has shrunk from more than $25 a barrel two weeks ago to less than $15.

What was Papandreou thinking?
The conventional view of the Greek situation is that George Papandreou had abdicated responsibility for proposing a referendum on the Greek rescue plan.

His announcement, late Monday, appeared to cut the knees out of the bailout plan negotiated last week and set the stage for real chaos. At one point, it looked as though the referendum was off. However, as a cabinet meeting late Tuesday, Papandreou repeated his vow to hold the referendum. (He also replaced the top brass in Greece's armed forces.)

"We expect the crisis to build," Capital Economics, a British consulting firm, wrote Tuesday, "prompting a prolonged recession in the eurozone, further turmoil in the markets and, at some point, the end of the euro itself in its current form."

The more cynical view is this: Greece can't afford the rescue plan. It's in the midst of a major recession. And the only real solution may be to junk the euro as its currency and work through its problems with a lower-valued currency.

 

Papandreou starkly put the point of the referendum in a transcript of the cabinet meeting obtained by Bloomberg News: "The dilemma isn't 'this or another government'," he told his ministers. "The dilemma is 'yes or no to the loan accord,' 'yes or no to Europe,' 'yes or no to the euro.'" 

Financial stocks are slammed

The practical effect of the problem, however, was to batter financial stocks in Europe and the United States.

Societe Generale (SCGLY), the big French bank, was trading down 14.5% to $4.96 in New York. BNP Paribas (BNPQY) was off 12% to $19.71. Deutsche Bank (DB) was off 7% to $38.50.

JPMorgan Chase (JPM) was down 5.9% to $32.71. Citigroup (C) was off 7.7% to $29.17.

It should be noted that Bank of America (BAC) ended its plan to charge customers $5 a month for using their debit cards. Shares were down 6.3% to $6.40.

 

JPMorgan and Bank of America were the worst Dow performers Tuesday.

Auto sales not as robust as hoped
Toyota Motor (TM) and Honda Motor (HMC) reported U.S. sales declines for October, when they pledged to record their first increases since April. General Motors and Ford Motor said their deliveries rose less than analysts’ estimates.

Toyota said sales slid 7.9% to 134,046, while Honda deliveries slipped 0.5% to 98,333, according to separate e-mailed statements. GM sales rose 1.7% to 186,895 and Ford light-vehicle deliveries gained 6.2% to 167,502, falling short of estimates by analysts who projected at least 6.6% increases for each. 

Edmunds.com analyst Jessica Caldwell said GM's results were depressed by weak sales to rental-car companies and the like. Retail sales were stronger, she told Bloomberg Television. She thinks sales could be relatively strong through December.

• Automakers disappoint with modest October gains

Total deliveries for the month increased 7.5% to 950,165. The closely watched seasonally adjusted annual sales rate rose to 13.2 million units, up 8% from a year ago and in line with the consensus estimate. There had been hopes the sales rate would hit as high 13.9 million.

The pace, which dipped below 12 million in May and June after Japan’s tsunami disrupted Toyota and Honda output, may now be challenged as Thailand’s floods disrupt that country's supply of parts.

Toyota stock was off 2.2% to $65.26. Honda ended up 0.7% to $30.10. GM, which reports quarterly results in a week, slumped 9.8% to $23.33, and Ford fell 5.1% to $11.08.

Short hits from the markets -- New York close
			Tues.			Mon.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.0200%			0.010%			100.00%			-83.33%
5-year Treasury note			0.909%			1.011%			-10.09%			-54.91%
10-year Treasury note			2.001%			2.175%			-8.00%			-39.46%
30-year Treasury bond			3.012%			3.199%			-5.85%			-30.95%
Currencies
U.S. Dollar Index			77.39			76.306			1.42%			-2.39%
British pound			1.5980			1.6090			-0.66%			2.40%
(in U.S. $)
U.S. $ in pounds			£0.626			£0.622			0.66%			-2.34%
Euro in dollars			$1.37			$1.39			-0.99%			2.55%
(in U.S. $)
U.S. $ in euros			€ 0.729			€ 0.721			1.00%			-2.49%
U.S. $ in yen			78.38			78.14			-0.07%			-3.67%
U.S. $ in Chinese			6.38			6.35			0.00%			-3.61%
yuan
Canada dollar			$0.984			$1.001			-1.71%			-1.97%
(in U.S. $)
U.S. dollar			$1.017			$0.999			1.67%			1.93%
(in Canadian $)
Commodities
Gold (-GC)			$1,711.80			$1,725.20			-0.78%			20.43%
(per troy ounce)
Copper (-HG)			$3.503			$3.632			-3.57%			-21.24%
(per pound)
Silver (-SI)			$32.7310			$34.3540			-4.72%			5.80%
(per troy ounce)
Wheat (-ZW)			$6.3000			$6.2825			0.28%			-20.68%
(per bushel)
Corn (-ZC)			$6.5425			$6.47			1.12%			5.10%
(per bushel)
Cotton			$0.9954			1.0229			-2.69%			-31.26%
(per pound)
Coffee			$2.2730			2.304			-1.35%			-5.49%
(per pound)
Crude oil (-CL)			$92.19			$93.19			-1.07%			0.89%
(per barrel)