Worst Wall Street drop since August

WALL Street suffered its worst day since August yesterday as investors dumped stocks on turmoil in oil exporter Libya, in what could be the start of a long-anticipated pullback after a lengthy rally.

Rising volatility and heavy volume added heft to the possibility of a larger pullback. With 9.76bn shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, it was the highest volume session for the month and the second-highest for the year.

The CBOE Volatility Index, Wall Street’s so-called fear gauge, surged 26.6 percent to end at 20.80, its highest one-day jump since May 20, 2010.

“We’ve got some smoldering fires and it’s an excuse for the market to sell off,” said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.

The benchmark Standard & Poor’s 500 lost 2.05 per cent, its worst one-day percentage drop since 11 August.

“How significant a sell-off we get, the next 24 to 48 hours is going to be important. If we can hold this 1,315 on the S&P and hold the trendline, than we can probably get through this. But any more weakness and there will probably be a cavalcade.”

Oil prices held near a 2-1/2 year high as the Libyan unrest cut supplies from the OPEC nation.

Heavy energy-consuming sectors were among the hardest-hit. The Dow Jones Transportation Average lost 3.8 per cent, with FedEx down 5.1 per cent at $93.29.

Despite the sharp pullback, the benchmark S&P 500 Index held a key support level near 1,313, representing highs reached earlier in February.

Many analysts have been anticipating a correction in a market that saw the S&P 500 climb last week to double its 12-year low hit in March 2009.

Still, optimism about the U.S. recovery appeared in a report that showed consumer confidence rose in February to a three-year high.

The Dow Jones industrial average lost 178.46 points, or 1.44 per cent, to end at 12,212.79. The Standard & Poor’s 500 Index fell 27.57 points, or 2.05 per cent, to 1,315.44. The Nasdaq Composite Index dropped 77.53 points, or 2.74 per cent, to 2,756.42.

After the closing bell, Hewlett-Packard slumped 10 per cent to $43.42 in extended trade after the Palo Alto, California-based company trimmed its 2011 revenue projections on falling consumer demand for its personal computers.

Wal-Mart Stores fell 3.1 per cent to $53.67 after posting its seventh straight drop in US sales.