Dow suffers worst 2010 trading drop

THE Dow suffered its worst drop of 2010 yesterday day as US stocks succumbed to fears that China’s curbs on bank lending might jeopardize the global economic recovery, while IBM’s outlook sparked caution about the technology sector.

Chinese authorities have ordered some major banks to curb their lending over the rest of this month after an early burst of credit, banking industry sources said.

Signals that China, the world’s third-largest economy, may restrain its economic expansion hurt shares of natural resource companies, including Alcoa, off 2.5 per cent at $15.23, and big manufacturers, with Caterpillar, down 1.9 per cent at $59.76. The S&P materials sector index fell 1.5 per cent.

“This is really a direct result of concerns around the tightening of credit in China,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. Although IBM posted a stronger-than-expected quarterly profit late on Tuesday, investors had misgivings about its guarded 2010 outlook, sending the stock down nearly three per cent.

The Dow Jones industrial average tumbled 122.28 points, or 1.14 per cent, to end at 10,603.15. The Standard & Poor’s 500 Index fell 12.19 points, or 1.06 per cent, to finish at 1,138.04. The Nasdaq Composite Index dropped 29.15 points, or 1.26 per cent, to close at 2,291.25.

The Dow suffered its largest daily percentage decline since late December, while the Nasdaq took its largest daily percentage loss in a week. It was the worst drop for the S&P 500 since Friday.

On Tuesday, the Dow and the S&P 500 ended at 15-month highs on bets the Democrats would lose a Senate seat. The S&P 500 is up 68.2 per cent since bottoming out in early March 2009.

Earlier yesterday, the major indexes had dropped about two per cent or more, but recovered some ground in the last hour of the session, thanks to some buying of bank stocks.

The latest earnings season picked up pace after the bell, when e-commerce company eBay and coffee chain Starbucks posted stronger-than-expected quarterly earnings.

Shares of eBay rose 4.6 per cent to $23.25 in extended trade, after ending the regular session at $22.23 on Nasdaq. Starbucks shares jumped three per cent to $24 in after-hours trading, after ending on Nasdaq at $23.29. The S&P energy index dropped 1.7 per cent. A run-up in the US dollar weighed on dollar-denominated commodity prices.