May 24 (Bloomberg) -- U.S. stocks dropped, with the market paring its rebound at the end of last week, after a Spanish lender was seized and bank borrowing costs rose on concern that Europe’s debt crisis has further to run.
AT&T Inc. and Verizon Communications Inc. fell at least 1 percent to pace losses in the Dow Jones Industrial Average. Wells Fargo & Co. declined after Goldman Sachs Group Inc. cut its recommendation on the bank. Apple Inc. rose on an upgrade from Morgan Stanley.
The Standard & Poor’s 500 Index lost 0.2 percent to 1,085.05 as of 9:35 a.m. in New York. The Dow Jones Industrial Average retreated 30.76 points, or 0.3 percent, to 10,162.63.
“We have more selling to go,” said Peter Jankovskis, who helps manage about $1.8 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “There are too many uncertainties about Europe suggesting that the global economic growth may not continue. Get ready for more volatility.”
Futures pared losses before the start of regular trading after Morgan Stanley lifted its price estimate on Apple to $310 a share and added the stock to its “best ideas” list. The iPhone maker’s shares advanced 2.6 percent to $248.50.
The rate banks say they pay for three-month loans in dollars rose above 0.5 percent for the first time in 10 months amid concern that the creditworthiness of financial institutions is deteriorating. The London interbank offered rate, or Libor, for such loans advanced today to 0.51 percent, the highest level since July 16, from 0.497 percent at the end of last week, according to data from the British Bankers’ Association.
Bank Seizure
Evidence is mounting that some financial institutions are facing stress. The Bank of Spain put CajaSur, a lender based in Cordoba, under a provisional administrator two days ago. The bank lost 596 million euros ($748 million) on 426 million euros in revenue last year.
U.S. stocks rebounded on May 21 from their biggest drop in a year, as investors speculated losses in equities stemming from concern about Europe’s debt crisis may have gone too far. The S&P 500 has fallen 11 percent from its 2010 high in April even as economic reports including U.S. retail sales beat estimates and European governments committed as much as 860 billion euros ($1.1 trillion) to support weak economies.
The S&P 500 has entered a correction, defined as a decline of more than 10 percent from a peak, on average 421 days after the start of 12 bull markets since 1932, according to HSBC Holdings Plc. The selloffs on average took the measure 15 percent lower.
‘Eyes on the Exit’
“I don’t think we’re out of the woods yet,” Ted Weisberg, president of Seaport Securities in New York, said in an interview on Bloomberg Television. If gains from May 21 don’t continue, “we have our eyes on the exit and we’re not going to be afraid to walk through.”
The U.S. benchmark gauge has climbed 61 percent since entering its latest bull run on March 9, 2009.
Asian stocks gained today on speculation Chinese policy makers will rein in efforts to cool the economy. Europe’s Stoxx Europe 600 Index rose 0.3 percent, coming back from last week’s 4.6 percent decline.
Sales of previously owned homes in the U.S. probably rose in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit, economists said before a report today.
Home Sales
Wells Fargo fell 1.9 percent to $29.54. The shares were downgraded to “neutral” from “buy” by Goldman Sachs analysts, who said there is “more relative value” in peers.
Citigroup Inc. gained 4 percent to $3.90. The bank was raised to “buy” from “neutral” at Goldman Sachs Group Inc., which cited an improvement in consumer credit and a better environment for capital markets as volatility increases.
Sprint Nextel Corp. advanced 5.4 percent to $4.65. The third-largest U.S. mobile-phone carrier was raised to “buy” from “neutral” at Goldman Sachs Group Inc.
U.S. stock-market volatility that surged to the highest level since March 2009 may persist as Europe’s debt crisis defies resolution, Relational Investors LLC’s Ralph Whitworth said.
Volatility Continues
The options-market gauge known as the VIX rose 1.3 percent to 40.61, extending its increase since April 12 to 161 percent, according to data compiled by Bloomberg. The index shows investors are paying more to protect against stock declines as governments seek to reduce deficits in Greece, Portugal and Spain. The Standard & Poor’s 500 Index is down 8.6 percent for May, poised for the biggest decline in 15 months.
“Volatility sent a strong message that we’re not out of the woods globally,” said Whitworth, who helps oversee $6.5 billion at San Diego-based Relational Investors. “I expect the modest recovery that’s under way to have resilience, with the major caveat being a big blowup in Europe. That could spread like an infection.”
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