Stocks extended their declines Tuesday, led by financials, as the dollar gained against the euro and Germany issued a proposal to ban naked short-selling.
Financials were the day's worst performer, along with techs and consumer discretionary. Materials, energy and industrials were the biggest gainers.
The Dow Jones Industrial Average accelerated its decline in the final hour of trading, down more than 100 points or more than 1 percent, after eking out a 0.1-percent gainon Monday.
The S&P 500 and Nasdaq were also down more than 1 percent. The CBOE volatility index, widely considered the best gauge of fear in the market, rose above 33, after falling earlier.
Most large-cap financials such as Bank of America , Citigroup and Goldman Sachs were trading lower.
The German government announced plans to ban naked short-selling at the country's 10 most important financial institutions, said a spokesman for the Finance Ministry. The ban will apply to credit-default swaps on euro government bonds as well as euro government bonds.
However, not everyone was convinced of the ban's effectiveness.
"We’ve been down this road — it’s a short-term fix and a type of circuit breaker," said Art Hogan, chief market strategist at Jefferies & Co.
Hogan said currencies are likely to have a bigger impact on stocks as the euro will continue to see new lows.
The dollar rose against the euro, reversing an earlier slide.
Meanwhile, the Senate is likely to hold a final vote on the financial-reform bill in a few days after key senators reached a compromiseon the balance of power between state and federal officials.
Walmart shares rose after the discount giant topped earnings its forecasts but said same-store sales fell 1.4 percent as customers have become less focused on low prices started buying more discretionary items. The company also delivered a weak outlook.
But outside of Walmart and a few others, most retailers were weak.
Home Depot shares gave up earlier gains. The home-improvement retailer beat earnings expectations and raised its outlookafter strong demand in the spring for gardening supplies and energy-efficient appliances.
The report comes a day after competitor Lowe's also beat estimates but disappointed investors with a weak outlook.
A slew of retailers delivered weak outlooks last week, including Priceline , JC Penney , Kohl's and Nordstrom .
Saks beat earnings expectationsas luxury spending has started to come back, allowing the upscale retailer to offer fewer promotions. However, the company projects slower growth in the current quarter and said it remains cautious due to the uncertain economic outlook.
Hewlett Packard shares fell ahead of earnings from the hardware and software maker, due out after the bell. due out after the bell. Analysts on revenue of $29.82 billion.
Other large-cap tech stocks were mostly weak including Dell , Microsoft and Google . Market experts attributed the pullback to some profit-taking after a strong rally in the sector on Monday.
Oil settled below $70 at a seven-month low of $69.41 a barrel, after rising above $72 earlier. Gold skiddedmore than $10 to settle at $1,214.30 an ounce.
Gold has bounded through new highs in the past week, topping out around $1,250. And, while some project the metal, widely viewed as a safe haven amid all the market turbulence, could go as high as $2,000, Dennis Gartman said gold has reached its top.
Investors in gold should "rush to the exits," Gartman said in his daily note to clients. "We wish we'd have been able to send (the letter) to everyone earlier this morning when exiting the trade was wiser, but we've a time table to stand by and we are few hours late in exiting...but exit we must...entirely...upon receipt of this commentary."
In the morning's economic news, producer prices fell 0.1 percentin May. Housing starts hit a 1 1/2-year high in April, though building permits, a gauge of future building activity, fell.
The U.S. economy will recover slowly as stubborn unemployment restrains spending plans and keeps inflation at bay, said Cleveland Fed President Sandra Pianalto, and stressed that inflation expectations remained well anchored.
"Our journey out of this deep recession will be a slow one," Pianalto told the Economic Club of Pittsburgh and the Pittsburgh Stock and Bond Association. "In my view, this outlook warrants exceptionally low levels of the federal funds rate for an extended period of time."
Shares of Beazer Homes jumped 5 percent after Citigroup upgraded the stock to "buy" from "hold." Citigroup noted that the homebuilder showed gross margin improvement in its second-quarter results and said other builders were facing potential margin deterioration.
Boeing announced that it would increase production of its narrow-body 737 model to 34 aircraft per month, due to strong demand from airlines as they rebound from the 2008 and 2009 recession.
And United Parcel Service announced strong growth expectations for its Asian business, adding that the volcanic ash cloud in Europe was not hampering its business.
BP shares fell after the energy company doubled the estimate of how much oil it was managing to siphon from the leak in the Gulf of Mexico, as it lifted the total bill for the clean-up to $625 million.
Meanwhile, three Massey directors were re-elected to the mining company's board, despite a threatened proxy battle over safety following the explosion last month that killed 29 workers at one of the firm's mine in West Virginia.
Euro-zone ministers scrambled to iron out details of the $1 trillion bailout plan as worries about Europe's ability to implement the plan and stem the debt contagion have rattled markets world-wide.
New curbs for the market, a response to the "flash crash" a few weeks ago in which the Dow went into a freefall for about 20 minutes, are expected to be announced today, though they won't go into effect right away.
Target and Applied Materials are scheduled to report earnings on Wednesday.
TUESDAY: JPMorgan & Massey Energy shareholders meeting; Fed’s Pianalto speaks; housing starts; PPI, earnings from Home Depot, Wal-Mart & Hewlett-Packard
WEDNESDAY: FOMC minutes; Google developers’ conference; weekly mortgage apps; CPI; weekly crude inventories; earnings from Deere, Target, Applied Materials
THURSDAY: Toyota/NHTSA hearing; BOJ monetary policy meeting; weekly jobless claims; leading indicators; Philadelphia Fed survey; earnings from Computer Sciences, Gamestop, Staples, Dell, Gap
FRIDAY: Earnings from Ann Taylor
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