Markets remain sensitive to European headlines as the region’s spiraling debt crisis could wreak further havoc on a slowing global economy.
Financial and energy stocks were among the primary drags. US crude futures lost 0.7 per cent to remain near the eight-month low hit last week. News that Spain had requested help for its struggling banks pressured financial stocks.
The PHLX oil service sector index dropped 3.4 per cent and the KBW bank index slumped 2.7 per cent.
Expectations for the two-day summit, which starts on Thursday, are low after Germany resisted pressure for common Eurozone bonds or a flexible use of Europe’s rescue funds at a meeting of the region’s four biggest economies last week.
“Last week we were very hopeful that they were moving forward and the meetings this week would have a positive ending. Today there is a lot of doubt the EU summit will generate anything substantial,” said Gail Dudack, chief investment strategist for Dudack Research Group in New York.
Austerity measures pushed forward by Germany have Greece mired in a long recession. Investors worry Spain could be the next domino to fall as Madrid’s borrowing costs remain stubbornly high.
Among individual stocks, Chesapeake fell 8.5 per cent to $17.03 as the worst performer on the benchmark S&P 500 index. Reuters reported that under the direction of chief executive Aubrey McClendon, the company plotted with its top competitor to suppress land prices in one of America’s most promising oil and gas locations.
The Dow Jones industrial average dropped 137.97 points, or 1.09 per cent, to 12,502.81. The Standard & Poor’s 500 Index lost 21.30 points, or 1.60 per cent, to 1,313.72. The Nasdaq Composite Index declined 56.26 points, or 1.95 per cent, to 2,836.16.
For the month, the Dow is up 0.88 per cent while the S&P 500 is up 0.26 per cent. The Nasdaq is up 0.31 per cent.
New US single-family home sales surged in May to a seasonally adjusted 369,000-unit annual rate, the highest since April 2010, and prices rose from a year ago amid tightening supply.
But the European concerns outweighed any signs of life in the long-struggling industry as a homebuilding index fell 1.6 per cent.
Wal-Mart Stores was the lone advancer on the Dow. Wal-Mart Canada said the company is opening of 47 hiring centres across Canada to support its growth plans. The stock rose 1.3 per cent to $68.18.
Volume was light with about 5.84bn shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq.