U.S. stocks give up year's gains on gloomy recovery prospect

08:11, August 12, 2010      

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Wall Street turned red for the year on Wednesday after worries about a slowdown in recovery sent major indexes plunging more than 2 percent.

Traders work on the floor of the New York Stock Exchange in New York, the United States, Aug. 11, 2010. Dow Jones industrial average turned negative for the year on Wednesday after worries about a slowdown in recovery sent stocks plunging. (Xinhua/Shen Hong)

As of Wednesday's closing, the Dow Jones industrial average tumbled 265.42 points, or 2.49 percent, to 10,378.83. The Standard &Poor's 500 index sank 31.59 points, or 2.82 percent, to 1,089.47 and the Nasdaq plummeted 68.54 points, or 3.01 percent, to 2,208. 63.

The stocks cut losses in late Tuesday trading after the Federal Reserve announced that it will use the proceeds from its investments in mortgage bonds to buy government debt on a small scale. The stimulus plan could help send long term rates on mortgages and corporate debt slightly lower.

But investors looked closer to the Fed's latest assessment of economic conditions, which said that "the pace of recovery in output and employment has slowed in recent months." That was a big change from its previous statement in June that the economy was " proceeding."

The Fed's gloomier view of the economy soured market sentiment, and triggered a heavy sell-off across the board. All major indexes fell sharply, erasing any gains earned this year.

Further pressured on the market was disappointing economic data from U.S. and Asia. The U.S. trade deficit unexpectedly widened in June to 49.9 billion dollars, the highest level since October 2008. Meanwhile, data showed that manufacturing slowed down in China.

The CBOE Volatility Index, a gauge to measure how panic the investors are, surged more than 13.3 percent.

Riskier assets were pressured while investors poured into Treasuries, pushing yields on U.S. government debt tumbling.

On Wednesday, the euro fell below 1.30 dollars against the dollar, which was the first time the 16-nation currency broke the level this month. In late New York trading, the euro fell to 1. 2882 dollars from 1.3196 dollars late Tuesday, and the British pound retreated to 1.5672 dollars from 1.5881 dollars.

The dollar tumbled to as low as 84.75 yen on Wednesday, the lowest level since July 1995. It rose back to 85.24 yen in late trading, compared with 85.27 yen late Tuesday.

Increasing gasoline and distillate fuel stocks and concerns about weak global demand send oil prices sharply lower. Crude futures fell 2.23 dollars, or 2.8 percent, to settle at 78.02 dollars a barrel on the New York Mercantile Exchange. Brent crude fell 1.96 dollars to settle at 77.64 dollars a barrel on the ICE Futures Exchange in London.Source:Xinhua
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