US stocks drop on Eurozone stability fears

NEW YORK REPORT

US stocks fell yesterday after a plan to tax bank accounts in Cyprus to help pay for the country’s bailout stoked worries that it could threaten the stability of financial institutions in the Eurozone.

The move pushed the S&P 500 farther from its 2007 record closing high of 1,565.15 after the index came within striking distance of the level it reached last week.

Financial stocks led the day’s decline, with the S&P 500 financial index down 1 per cent, following a steep slide in European bank shares.

JP Morgan Chase dropped by one per cent to $49.51.

Cypriot ministers were trying to revise a plan to seize money from bank deposits before a parliamentary vote today that will secure the island’s financial rescue or else could lead to its default.

European officials have said the measure is a one-off for a country that accounts for just 0.2 per cent of European output. The fear is that savers in larger European countries will become nervous and start withdrawing funds, although there was no immediate sign of that yesterday.

“There are worries about whether there will be any spillover from the Cyprus situation,” said Nick Sargen, of Fort Washington Investment Advisors in Cincinnati.

“Will authorities be able to convince markets that this proposal is only for this unique situation, for such a small country where the banking system is more of a tax shelter? If they can’t, that might cause new concerns about Europe’s banking system.”

The Dow Jones industrial average slipped 62.05 points, or 0.43 per cent, to 14,452.06 at the close. The Standard & Poor’s 500 Index shed 8.60 points, or 0.55 per cent, to 1,552.10. The Nasdaq Composite Index dropped 11.48 points, or 0.35 per cent, to close at 3,237.59.