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Stocks Fall, Led by Energy, Banks; Dollar Up

Cindy Perman HKSCKPVIamp; JeeYeon Park|CNBC.com
Thursday, 3 Jun 2010 | 1:38 PM ET

Stocks turned lower on Thursday, led by energy and financials, amid the strengthening dollar and a pair of credit downgrades on BP. Techs were among the best performers.

Economic data were a mixed bag: The services sector grew for a fifth straight month but the report wasn't a blowout. Stocks had opened higher after a pair of encouraging employment reports.

Energy and financials have swung between positive and negative territory in the past few sessions, taking the broader market with them.

The Dow Jones Industrial Average fell into negative territory, after being up more than 60 earlier.

The S&P 500was trading lower, while the Nasdaqbobbed in and out of the positive zone. The CBOE volatility indexrose to trade above 30.

The biggest drags on the Dow were Alcoa , DuPont and Home Depot . Microsoft, Cisco and Hewlett-Packard rose as techs were among the day's best performers.

Stocks saw their third best day of the yearWednesday, thanks to a late-session rally, with each of the three major indexes ending more than 2 percent higher. Energy and financials shares were the lead gainers after better-than-expected housing data boosted investor sentiment.

The Dow has now had triple digit moves in 19 of the past 26 sessions dating back to April 27. In the month prior to that date, the Dow had only two triple-digit moves.

“Yesterday’s rally was a short-term pause in a pre-established downtrend,” said Tom Schrader, managing director for U.S. equity trading at Stifel Nicolaus. “We’re seeing weakness in euro/dollar, which is not good for equities, and continued speculation on the European banking community and economy.”

Stocks may fall another 5 percent during these summer months, Schrader added.

There’s also speculation that the Swiss banking community may not be supporting the euro as they have in the past, he added.

The dollar rose broadly against the eurowhile credit spreads tightened, with three-month Libor rising to 0.5378 percent and the Ted spread, or the difference between Libor and the three-month Treasury note, increasing to 0.3958 percent.

Oil prices rose toward $74 a barrel after U.S. government data showed crude and gasoline stocks had fallen more than expectedlast week. And gold fell near $1,200 an ounce.

Gold miners took a hit as shares of Barrick Gold , Newmont Mining and AngloGold each dropped more than 2 percent.

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BP shares retreated after both Fitch and Moody's slashed their credit ratings on BP. The company continued its attempt to slow oil spewing from its leaking pipe in the Gulf, taking a "significant step forward" after successfully cutting a pipe. Meanwhile, oil washed ashore in Alabama and Mississippi.

UBS cut the price targets of a handful of energy companies including Diamond Offshore , Halliburton and Noble Energy .

In U.S. economic news, the ISM reported its nonmanufacturing index, one of the best gauges of the services sector, which accounts for 80 percent of economic activity, held steady at 55.4 in May from April. Still, the index has remained above 50, a level that indicates growth, for five straight months.

Meanwhile, factory orders rose 1.2 percent in April after a 1.7-percent gain in March. Plus, the government said initial claims for unemployment insurance dropped to 455,000last week, though the number of people still receiving benefits rose unexpectedly. And the private sector added 55,000 jobs in May, less than expected, according to a report from ADP.

The ADP report is closely watched ahead of the government’s May employment report, due out on Friday. Economists expect to see 513,000 jobs were added to nonfarm payrolls last month, after a 290,000 increase in the prior month.

A separate report showed nonfarm productivity slowed to a 2.8 percent annual rate in the first quarter, down from the initial estimate of 3.6 percent and the slowest pace in a year, as businesses started adding workers to maintain output.

JPMorgan has been fined $49.12 million by the UK's industry watchdog, the Financial Services Authority, for not protecting client money over a period of seven years. The fine is the largest the FSA has ever handed out.

Other financials such as Bank of America , Morgan Stanley and Goldman Sachs also fell.

Major retailers reported their May salesthis morning, with mixed results.

Macy's , Gapand Saks all beat expectations, while Costco and Target fell short of forecasts.

Meanwhile, Fed chairman Bernanke said small-business lending is declining, thus making it more difficult to come to grips with the persistent problem of high unemployment.

And, Atlanta Fed President Dennis Lockhart said the U.S. economy is almost strong enough to allow the Fed to begin raising interest rates.

"As the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability," he said.

Other Fed bank presidents Hoenig, Rosengren, and Fisher are scheduled to speak today.

Ahead of the weekend meeting of G20 nations, British finance minister George Osborne said China's yuan will be a topic of discussion, while a variety of participants, including U.S. Treasury Secretary Tim Geithner, say a deal on a specific bank bailout "tax" is highly unlikely at the gathering.

The Wall Street Journal is reporting that Nielsen Holdings, the largest provider of TV ratings, is planning to file for an IPO soon.

And Facebook CEO Mark Zuckerberg told the All Things Digital Conference that he has no particular date in mind to take his company public.

Still to Come:

FRIDAY: May jobs report; Fed's Lockhart speaks; Walmart shareholder meeting; Sprint's first 4G phone goes on sale

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