US shares sink as dollar jumps higher

AMERICAN stocks fell yesterday as the dollar’s rebound spurred a safe-haven trade, cutting demand for riskier assets, while a soft profit outlook from economic bellwether FedEx sank transportation shares.

Financial services stocks took a beating after influential banking analyst Meredith Whitney cut her earnings estimates on Goldman Sachs and Morgan Stanley.

The US dollar index, which measures the greenback’s performance against a basket of major currencies, rose nearly one per cent -- hitting its highest level in more than three months. In recent months, stocks have risen sharply while the greenback dropped, as investors took advantage of the inexpensive currency to buy higher-yielding assets.

“The dollar is starting to spook the market here a little bit,” said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company.

An unexpected increase in new claims for jobless benefits in the latest week illustrated the bumpy road for the US economic recovery. The jobless claims offered a sharp contrast to a report from the Federal Reserve Bank of Philadelphia, whose index showed factory activity accelerated rapidly in the US Mid-Atlantic region in December.

The Dow Jones industrial average dropped 132.86 points, or 1.27 per cent, to end at 10,308.26. The Standard & Poor’s 500 Index fell 13.10 points, or 1.18 per cent, to 1,096.08. The Nasdaq Composite Index lost 26.86 points, or 1.22 per cent, to close at 2,180.05.

The market shuddered after FedEx forecast third-quarter profit below analysts’ expectations, pushing its stock down 6.1 per cent to $84.47. The Dow Jones Transportation Average lost 1.2 per cent. Whitney trimmed earnings estimates for Goldman and Morgan for 2010 and 2011. Goldman Sachs shares dropped 2.5 per cent to $160.93, while Morgan Stanley shed four per cent to $29.12. The S&P Financial Index slid 1.8 per cent, while the NYSE Arca Broker/Dealer Index fell 2 percent.

Citigroup tumbled 7.3 per cent to $3.20 after the bank’s stock and bond offering attracted weak demand and priced much lower than expected, prompting the US Treasury to delay a plan to sell its Citigroup stake.