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China slump, higher bond yields weigh on markets

Jun. 24, 2013 @ 11:00 PM

NEW YORK -- More signs of distress in China's economy and rising bond yields led to a broad sell-off in stocks Monday, leaving the market down 5.7 percent from its all-time high last month.

It's the first pullback of 5 percent or more since November.

U.S. trading started with a slump Monday. The market recovered much of its loss, then fell back toward steeper losses again. By the close of trading the big stock indexes were clinging to modest gains for the second quarter. The last day of trading for the quarter is Friday.

Things were rough for stock investors in the morning. An overnight plunge in China caused by a spike in lending rates led to declines in Europe. China's Shanghai Composite Index fell 5 percent, its biggest decline in four years. The drop was prompted by a government crackdown on off-balance sheet lending, which made investors worry about China's economic growth. Then France's benchmark stock index fell 1.7 percent, Germany's 1.2 percent.

U.S. traders took one look at that and sold. The Dow Jones industrial average fell as much as 248 points in the first hour of trading. The yield on the 10-year Treasury note spiked to its highest in almost two years as the sell-off brought down prices of U.S. government debt. Gold and other metals also fell.

Stocks got closer to break-even around midday before falling again in the last hour. The Dow finished down 139.84 points, or 0.9 percent, at 14,659.56. The S&P 500 index fell 19.34 points, or 1.2 percent, to 1,573.09. The Nasdaq dropped 36.49 points, or 1.1 percent, to 3,320.76.

All 10 industry groups in the S&P 500 fell. The biggest drop was 1.8 percent for bank and financial stocks. Bank of America fell the most among major bank stocks, giving up 39 cents, or 3.1 percent, to $12.30.

Getting reliable information out of China is difficult, so it takes investors longer to decide how to react to developments there, said Gary Thayer, chief macro strategist for Wells Fargo Advisors.

The turbulence is also another a sign of how vulnerable financial markets remain to any comments from the Fed about its $85 billion in monthly bond purchases, which have kept interest rates at historic lows and helped drive the stock market's rally the last four years.

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