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Stocks Pare Losses as Volatility Subsides

Cindy Perman|CNBC.com
Thursday, 1 Jul 2010 | 3:19 PM ET

Stocks got the new quarter off to a weak start Thursday after disappointing reports on housing, manufacturing and jobless claims.

But major indexes were off their earlier lows: The Dow Jones Industrial Average pared its loss down to about 50 points in early afternoon trading, after being down more than 100 earlier.

The CBOE volatility index, widely considered the best gauge of fear in the market, fell back below 33 after topping 36 earlier.

This comes after the Dow ended the second quarter down 10 percent, the worst quarter since the first quarter of 2009 — and the first quarterly decline since then.

Pending-home sales plunged 30 percentin May from April, more than twice the 13-percent decline expected. Construction spending fell 0.2 percent, less than expected.

The ISM reported its gauge of manufacturing activity dropped to 56.2in June from 59.7 in May; economists had expected a smaller dip to 59.

But Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the report wasn't a huge cause for concern.

"This is a bigger drop than was implied by the regional surveys but it is hardly disastrous," Shepherdson wrote in a note to clients. "[T]he ISM rarely stays in the very high 50s for very long."

Earlier, a report showed initial claims for unemployment benefits rose by 13,000 last week to to 472,000; economists had expected claims to fall. Separate reports showed planned layoffs rosein June and private companies added just 13,000 jobs in June, well below expectations.

The claims numbers reflect the dropoff from hiring for the Census and will likely be skewed this month due to auto factories shutting down for retooling, Shepherdson noted.

"The next clean read on claims will come in August, and we expect to see them little changed from their current level," Shepherdson wrote. "Claims are far too high, but the underlying trend is probably not rising appreciably."

The report is closely watched ahead of the government's jobs report, due out on Friday. Economists expect to see 110,000 jobs were lost from nonfarm payrolls in June, according to the latest Reuters survey, which would snap a five-month streak of gains.

Financials were the biggest decliners, with Bank of America , JPMorgan and American Express in the Dow's bottom three.

The House has passed the financial-reform reform bill but the Senate will not be dealing with the legislation until after the July 4th holiday recess.

Global concerns added to the pressure on the market after a report showed Chinese manufacturing growth slowed in June and as the S&P and Moody's warned of a possible credit downgrade on Spain.

Spain completed a 3.5 billion euros ($4.3 billion) auction Thursday and demand was weaker than at prior auctions. France also sold nearly 7.5 billion euros in government bonds.

Famous investor Jim Rogers told CNBC a bubble was forming in bond markets and inflation is already here.

Citigroup retreated after an earlier pop as the U.S. Treasury said it it sold 1.1 billion shares.

Shares of electric-car maker Tesla rose, after jumping 40 percent on their debut and then slipping a little on Tuesday.

Ford reported its sales rose 15 percent in June.

Chrysler sales were up 35 percent, while General Motors sales fell 13 percent. Economists expect overall U.S. sales fell 10 percent last month.

Toyota is considering another recall — this one would be up to 270,000 cars to eliminate possible engine failure.

Amazonlaunched a new Kindle e-book reader for $379, down from $489, to try to fend off competition from Apple's iPad. The reader includes a free 3G wireless c connection.

This Week:
THURSDAY: June auto sales
FRIDAY: June jobs report; factory orders

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