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Stocks Hit by German Move; VIX Jumps

Published: Wednesday, 19 May 2010 | 3:08 PM ET

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By: Cindy Perman & JeeYeon Park

Stocks fell Wednesday as Germany's move to ban some naked short-selling fueled a wave of fears about exposure to riskier assets.

Major U.S. Indexes

.DJIA

.NCOMP

.SPX

Industrials were the day's worst performers, along with materials and energy. Health care and telecoms were the best performers.

The Dow Jones Industrial Average was down about 100 points in the final hour of trading, led by Caterpillar [CAT Loading... () ] and Boeing [BA Loading... () ].

The S&P 500 and Nasdaq were also trading lower. The CBOE volatility index, widely viewed as the best gauge of fear in the market, spiked above 35.

Bank of America [BAC Loading... () ] and JPMorgan [JPM Loading... () ] were among the top gainers on the Dow.

Market pros attribute the selloff to a combination of factors including the European fears, seasonal timing and economic uncertainty.

European stocks ended at their lowest level in nearly two weeks, led by banks, amid rising tensions over Germany's ban on some naked short selling on Tuesday and the impact of Greece and other nations with heavy debt loads on the European Union.

"Wall Street is against regulation and anything that tempers the normal course of the markets," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

This came as the SEC released proposed new rules on single stock trading, to prevent a stock being driven down to a penny like some were during the May 6 market freefall. And Congress is about to make a preliminary vote on financial reform.

Plus, there are concerns about the future of the euro zone.

"By Germany striking out and taking some actions on their own, it raises the concern of if Germany gets frustrated, they’re going to leave the euro zone — and the success of this bailout centers around Germany’s participation,” Pado said.

Meanwhile, the euro clawed back against the dollar and other currencies amid buzz in the market that Greece is considering leaving the EU. A spokesperson for Greece categorically denied the debt-riddled nation is considering such a move.

Earlier, the euro hit a four-year low against the dollar after German Chancellor Angela Merkel said the euro was in danger.

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Oil dropped below $69 a barrel after a report showed crude inventories rose by just 200,000 barrels last week, far less than expected. Gold continued its descent to back to earth, falling below $1,200 an ounce. The precious metal recently went as high as $1,250.

Minutes from the last Fed meeting show policy makers had a slightly better view of the economy in April than they did at the beginning of the year. Fed officials said the economy can grow between 3.2 percent and 3.7 percent this year — an upward revision from a growth range of 2.8 percent to 3.5 percent in their January forecast.

In addition, the Fed sees the unemployment rate, now at 9.9 percent, dipping to between 9.1 percent and 9.5 percent by year-end.

Hewlett-Packard [HPQ Loading... () ] advanced after the company beat earnings expectations and raised its full-year outlook. Analysts are mixed: At least two brokerages raised their price targets on the stock, while two lowered their targets.

Target [TGT Loading... () ] also topped forecasts as consumers have begun to spend more on discretionary items such as clothing and electronics. S&P Equity raised the firm to "buy" from "hold."

This came as Walmart [TGT Loading... () ] reported a same-store sales decline as more shoppers are trading up.

Lawnmower maker Deere [DE Loading... () ] also topped forecasts and raised its full-year outlook.

Shares of Visa [V Loading... () ], MasterCard [MA Loading... () ] and Capital One [COF Loading... () ] bounced back after being hammered on Tuesday. The credit-card networks have been under pressure amid fears that financial reform that could give more power to the Fed to regulate card fees would hurt profits.

Elsewhere in the financial sector, Ambac Financial [ABK Loading... () ] dropped almost 10 percent after the bond insurer reported a wider quarterly loss on Tuesday.

Zions Bancorp [ZION Loading... () ] declined 3 percent after the regional bank announced a public offering of $150 million of warrants to acquire its common stock as part of its capital-raising plans.

Chips started to claw back after see-sawing earlier. The sector took a beating on Tuesday amid buzz that overseas sales of computers and gadgets may not live up to expectations.

Still, Sterne Agee initiated coverage of Apple [AAPL Loading... () ] with a "buy" rating and slapped a $300 price target on the stock, saying it doesn't see a slowdown for the iPhone and iPad maker.

On the M&A front: Yahoo shares [YHOO Loading... () ] fell after the search engine firm said it agreed to acquire Associated Content to add more pages to attract advertisers.

Symantec [SYMC Loading... () ] is close to acquiring VeriSign’s [VRSN Loading... () ] widely used technology for securing payments over the Internet in a deal worth $1.3 billion, according to sources.

Google [GOOG Loading... () ] is also buying Oslo-based Global IP Solutions for $68 million to build its real-time audio and video Internet capabilities.