Stock rally fades ahead of debt vote in House
NEW YORK — A late sell-off wiped out the stock market’s gains Thursday as investors worried that a bill headed for a vote in the House of Representatives would fail to break a stalemate over raising the country’s debt limit.
The market was up for much of the day but started to sink in the last half-hour of trading. Senate Majority Leader Harry Reid said in the afternoon that the House bill wouldn’t get a single Democratic vote in the Senate, meaning it would fail.
“That gave a catalyst for selling,” said Quincy Krosby, market strategist at Prudential Financial.
The Dow Jones industrial average fell 62.44 points, or 0.5 percent, to close at 12,240.11. The index had been up as many 82 points earlier in the day following an unexpected decrease in new claims for unemployment benefits.
Just five days remain until the Treasury Department says the government won’t have enough money to cover all its bills. The Dow has fallen every day since Friday because of worries that the U.S. might default on its debt if Congress doesn’t raise the country’s borrowing limit. The Dow is headed for its worst week in just over a year.
The Standard & Poor’s 500 fell 4.22, or 0.3 percent, to close at 1,300.67. The S&P 500 has fallen for the past four days. The Nasdaq composite index edged up 1.46, or 0.1 percent, to 2,766.25.
Even if the U.S. doesn’t default, investors worry that the country might lose its triple-A credit rating. That could raise interest rates and possibly slow down the U.S. economy, which is still recovering from the worst recession in decades.
“We’re running out of time,” said Phil Dow, director of equity strategy at RBC Wealth Management in Minneapolis. “It’s getting scary.”
The Dow is now down 3.5 percent for the week and is headed for its worst week since early July 2010. The S&P 500 is down 3.3 percent for the week, while the Nasdaq is down 3.2 percent.
Markets were still less volatile than Wednesday, when the Dow had its biggest one-day drop since early June. One reason for optimism: The government said first-time applications for unemployment benefits fell to 398,000 last week, the lowest level in four months. That’s a sign that employers are laying off fewer workers.
The price of gold, which tends to rise when investors are fearful of economic disruptions, fell $1.70 to $1,613.40 an ounce. It’s still up 13.4 percent this year. The dollar rose against other currencies, as did Treasury prices. The dollar and Treasurys would likely fall if investors were worries that a default was imminent.
Technology stocks rose after LSI Corp., which makes storage and networking chips, forecast revenues that were higher than investors were expecting. Its stock gained 14.1 percent, the most in the S&P 500.
Bristol-Myers Squibb Co. rose 1.5 percent after the drugmaker reported earnings that were better than analysts anticipated. The company also raised its earnings forecast for 2011.
Exxon Mobil Corp. fell 2.2 percent after its earnings came in below analysts’ estimates.
Akamai Technologies Inc. fell 19.1 percent, the most in the S&P 500 index, after the online streaming company’s earnings were lower than analysts had expected. Sprint Nextel Corp. fell 15.9 percent. The nation’s No. 3 wireless carrier said its loss widened in the second quarter, partly because of a tax expense and investment losses.
Nearly two stocks fell for every one that rose on the New York Stock Exchange. Volume was relatively heavy at 4.4 billion shares.