By Polya Lesova, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks slid on Monday, with the
Dow industrials sinking more than 200 points after Shanghai stocks
plunged 5.3% on increasing fears over a liquidity crunch in
China.
Monday's selloff comes after last week's bruising selloff on
Wall Street, prompted by concern that the Federal Reserve will
start pulling back monetary stimulus later this year if the economy
improves further.
The Dow Jones Industrial Average (DJI) dropped 222 points, or
1.5%, to 14,576, with only one of its 30 components in positive
territory.
Boeing Co. (BA) was the top decliner in the Dow, dropping 3.3%
after one of its 787 Dreamliner planes flown by United Airlines
(UAL) had to make an emergency landing Sunday due to a brake
problem.
Bank of America Corp. (BAC) and J.P. Morgan Chase & Co.
(JPM) were also among the biggest decliners in the benchmark,
dropping 3.2% and 2.7%, respectively.
The S&P 500 index (SPX) declined 25 points, or 1.6%, to
1,567.78, with all of its 10 major sectors in negative terrain.
Materials and financials posted the biggest losses.
The Nasdaq Composite index (RIXF) fell 51 points, or 1.5%, to
3,305.79.
Shares of Apple Inc. (AAPL) fell 2.7% after Jefferies cut its
price target to $405 from $420, saying the technology company may
slow iPhone production.
In the U.S. government-debt markets, the 10-year Treasury yield
(10_YEAR), which moves inversely to price, surged 10 basis points
to 2.636%.
European stocks tumbled and Shanghai stocks melted down.
U.S. stocks are declining "due to the concern over the state of
the Chinese economy and the implications for the rest of the
world," said Stephen Pope, managing partner at Spotlight Ideas, in
an email. "I am convinced we have overdone the downside with regard
to that [Federal Reserve] story, but now with China we have another
excuse to trade with timidity."
U.S. stocks fell sharply last week, with investors spooked after
the Federal Reserve signaled it may scale back bond purchases later
this year if the economy continues to improve as the central bank
expects. Last week, the S&P 500 declined 2.1% and the Dow
industrials fell 1.8%. Read about seven ways to spot a market
top.
The Fed has fallen short of its inflation and employment
objectives, New York Fed President William Dudley said Monday.
Dudley said that Fed policy, while aggressive by historical
standards, is not sufficiently accommodative. Read Dudley's full
speech.
Chinese market tumbles
On Monday, the Shanghai Composite Index plunged 5.3% to
1,963.24, its first close below 2,000 since December. The
percentage drop was the worst since a 6.7% fall in August 2009. A
cash crunch in China took a toll on bank stocks. Short-term
interbank interest rates in Shanghai were off last week's highs,
but still above 6% on Monday. Financial stocks fell on fears
Beijing officials may be unwilling to ease that liquidity crunch.
China's central bank warned Monday that banks need to control
liquidity better.
Goldman Sachs downgraded its GDP growth forecasts for China to
7.4% and 7.7% for 2013 and 2014, respectively, from 7.8% and 8.4%,
previously. Read commentary: China's alarming credit crunch
"The recent tightening of the interbank market has sent a strong
policy signal that the strong credit growth earlier in the year
will likely not continue," wrote Goldman economist Li Cui in a
note.
"The overriding fear is that what is in the long-term interest
of China, as they act to constrain the domestic bubble, is going to
prove problematic for the economies of the developed world in the
short term," said Pope.
In corporate news, shares of Vanguard Health Systems Inc.
(VHS.XX) soared 67% after Tenet Healthcare Corp. (THC) agreed to
acquire the company for $1.63 billion, or $21 in cash per Vanguard
share, marking a 70% premium to Vanguard's Friday close. Shares of
Tenet Healthcare rallied more than 7%.
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