Wall Street sinks after sell-off in Germany

Dow Jones: 11,149.82 (–170.89) Nasdaq: 2,419.63 (–48.06) SP 500: 1,159.27 (–18.33)US STOCKS fell yesterday, snapping a three-day rally, after jobless claims unexpectedly increased and selling in German futures sparked a rout in global equities.

Financial shares in the Standard and Poor’s 500 Index erased a gain of as much as 4.8 per cent. Bank of America, the biggest US lender, surged 9.4 per cent to $7.65, after saying Warren Buffett’s Berkshire Hathaway will invest $5 billion to bolster the company.

Apple fell 0.7 per cent to $373.72 after Steve Jobs resigned as chief executive officer.

The S&P 500 slid 1.6 per cent in New York.

The Dow Jones Industrial Average declined 170.89 points, or 1.5 per cent, to 11,149.82.

“We’re not out of the woods and the market is reflecting that,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management.

“The European situation is still a mess. Sometimes these markets get hit because they are the most liquid. If you want to dump risk quickly in Europe, shorting Germany is probably the best way to do it. The market bounced over the last few days because we were so oversold, but the economic fundamentals did not change,” he said.

A report yesterday showed an unexpected increase in American jobless claims. Stock futures reversed gains as jobless claims climbed by 5,000 to 417,000 in the week ended August 20th, Labor Department figures show.

Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Claims were pushed up for a second time by a labour dispute at Verizon Communications.

Traders sold German equity futures to hedge their investments before France, Italy and Spain extended curbs on short selling.

The selling of DAX futures lifted volume to a quarter of the daily average within a 30-minute period. That dragged down the index, pulling US and European equities lower, and drove Treasuries and the dollar higher.

Investors are awaiting a speech by Federal Reserve chairman Ben S Bernanke in Jackson Hole, Wyoming, today for any indications of whether the central bank will embark on further stimulus. – (Bloomberg)