NEW YORK (Reuters) –
U.S. stocks fell more than 1 percent in a truncated session on Friday as a possible debt default by a Dubai state-owned conglomerate led to fresh concerns about the global financial system.
The sell-off was broad, with selling concentrated mainly in the financial and commodity-linked sectors as investors trimmed positions in areas of the market most sensitive to economic uncertainty.
That hit stocks like aluminum producer Alcoa Inc (AA.N), down 2.6 percent, and Bank of America (BAC.N), down 3 percent.
But after a slide of more than 2 percent at the open, the flight to less risky assets seemed to be subsiding, helping the major U.S. stock indexes ease back up off their lows. The U.S. dollar, which had jumped sharply as investors looked for a safe haven, pared gains and commodity prices stabilized.
The news out of the Middle East coincided with the desire by many investors to lock in 20 percent year-to-date gains in the S&P 500 after a terrible year in 2008.
"It is at least an early indication of whether investors believe this is one-time bad news or the tip of something really bad," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Right now, it looks like investors are taking the optimistic stance."
The Dow Jones industrial average (.DJI) dropped 154.48 points, or 1.48 percent, to end at 10,309.92. The Standard & Poor's 500 Index (.SPX) fell 19.14 points, or 1.72 percent, to 1,091.49. The Nasdaq Composite Index (.IXIC) lost 37.61 points, or 1.73 percent, to 2,138.44.
For the week, the Dow dipped 0.1 percent, while the S&P 500 edged up 0.01 percent and the Nasdaq slipped 0.4 percent.
Volume was light on the day after Thanksgiving. The U.S. stock market shut on Friday at 1 p.m. (1800 GMT), which was three hours shy of its normal closing bell, but the number of declining stocks still towered over those advancing.
On Wednesday, Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill agreement as a first step toward restructuring billions of dollars of debt.
On Thursday, U.S. financial markets were closed for the Thanksgiving holiday. But financial markets around the world shuddered, reflecting fears about the impact of a potential Dubai debt default.
It was uncertain how much exposure U.S. banks have in Dubai. But influential bank analyst Richard Bove said in a note "it does not appear that American banks have any major direct impact from this event."
Bank of America (BAC.N) fell 3 percent, or 48 cents, to $15.47, while Citigroup (C.N) tumbled 2.6 percent, or 11 cents, to $4.06. These two stocks were the most heavily traded on the New York Stock Exchange.
Commodity-linked stocks sold off sharply, but stabilized after the U.S. dollar pared gains and helped lift commodity prices off their session lows.
Even so, Dow component Alcoa Inc (AA.N) fell 2.6 percent, or 34 cents, to $12.66, while gold miner Newmont Mining Corp (NEM.N) lost 2.8 percent, or $1.55, to $53.35.
The U.S. dollar rose 0.3 percent against a basket of currencies (.DXY), after earlier climbing around 1 percent. U.S. crude oil futures for January dropped $2.18, or nearly 3 percent, to $75.78 a barrel.
Dow component Exxon Mobil Corp (XOM.N) shares fell 2.1 percent, or $1.60, to $74.87 on the New York Stock Exchange.
Even retailers' stocks did not escape investors' concerns on "Black Friday," which marks the unofficial start to the holiday shopping period.
An S&P index of retail stocks (.RLX) slipped 1.3 percent.
During the holiday shopping season, investors will watch for news about lines at store cash registers and insights into consumer spending, which accounts for about 70 percent of the U.S. economy.
Early indications were that while shoppers were out in force on Black Friday, they were being more selective with their purchases than they were before the recession hit in December 2007.
Shares of department store chain Macy's Inc (M.N) fell 3.4 percent, or 59 cents, to $16.97. The S&P consumer discretionary index (.GSPD) fell 1.5 percent.
Volume was sparse on the New York Stock Exchange, where only about 654.83 million shares changed hands, far below last year's estimated daily average of 1.49 billion.
On the Nasdaq, about 963.73 million shares traded, well below last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 6 to 1. On the Nasdaq, nearly five stocks fell for every one that rose.
(Reporting by Edward Krudy; Editing by Jan Paschal)
LONDON – European stock markets rebounded Friday after Wall Street didn't fall as much as feared on the news that Dubai is having trouble handling its debt.
Because U.S. markets were closed for Thanksgiving Day on Thursday, they are only reacting now to the fears that Dubai's debt problems may affect the wider financial system.
In Europe, the FTSE 100 index of leading British shares closed up 51.60 points, or 1 percent, at 5,245.73 while Germany's DAX rose 71.44 points, or 1.3 percent, at 5,685.61. The CAC-40 in France ended 42.22 points, or 1.2 percent, higher at 3,721.45.
On Wall Street, the Dow Jones industrial average was down 137.40 points, or 1.3 percent, at 10,327 around midday New York time while the broader Standard & Poor's 500 index fell 15.64 points, or 1.4 percent, to 1,094.99. Futures markets had earlier been pricing in 2 percent plus declines on the two indexes.
Though hefty, the losses in the U.S. paled in comparison to those posted earlier in Asia, when indexes in Hong Kong and South Korea tumbled 5 percent in response to the previous day's Dubai-related losses in Europe.
"The story for most of today has been one of continued recovery, clawing back a portion of the losses seen on Thursday...a fairly orderly opening to U.S. markets has also helped calm nerves," said Anthony Grech, market strategist at IG Index.
"So far the recovery has been an encouraging one and shows that even after eight months of strongly rising stock markets, the appetite still seems to be out there to buy into the dips," Grech added.
Confidence about the world economy was hit hard by the news that Dubai World, a government investment company with around $60 billion worth of debt, has asked creditors if it can postpone forthcoming payments until May. Investors are wondering whether the current uncertainty surrounding the emirate has brought the eight-month equities bull run to an end.
Analysts said more clarity about the long-term impact of Dubai's troubles would likely emerge next week, when Wall Street is back to normal trading hours following the Thanksgiving Day holiday. U.S. markets are only open for half the day Friday.
"It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course," said Jane Foley, research director at
Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 84.81 yen.
However, the dollar climbed back off its lows to 86.87 yen amid mounting expectations that the Bank of Japan may intervene in the markets by buying dollars or selling yen after Japan's finance minister Hirohisa Fujii said he was "extremely nervous" about the movements in the yen and that the "market had moved too far in one direction."
On Thursday, the Swiss National Bank reportedly intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc. That seems to have worked — for now, at least — as the dollar has moved back above parity, trading 0.9 percent higher at 1.0118 Swiss francs.
The British pound has also been battered amid fears about the exposure of Britain's banks to the region. The pound was down nearly one percent earlier but recovered some ground alongside the better than expected performance in stock markets to be trading only 0.1 percent lower at $1.6495.
Another currency that has been struggling since the Dubai news broke is the euro, which was down a further 0.4 percent to $1.4963 — in times of uncertainty the dollar is considered to be more of a safe haven currency. Investors are also concerned about the exposure of European banks to Dubai.
Earlier, Asian stocks were particularly badly hit as they played catch-up following the big losses in Europe in the previous session. Hong Kong's Hang Seng closed 1,075.91 points, or 4.8 percent, lower at 21,134.50, while South Korea's benchmark plummeted 4.7 percent to 1,524.50.
Elsewhere in Asia, Japan's Nikkei 225 stock average fell 3.2 percent to 9,081.52 while Australia's index dropped 2.9 percent. China's main Shanghai stock measure was off 2.4 percent.
Indexes in emerging markets avoided a second day of losses, with Russia and Brazil up about 1 percent.
Oil, meanwhile, tracked developments in stock markets and benchmark crude for January delivery fell $2.21 to $75.75 a barrel in electronic trading on the New York Mercantile Exchange.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
PHOENIX – The Arizona Supreme Court is being asked to overturn the Legislature's use of budget laws to set state policy on topics ranging from teachers' seniority rights and immigration enforcement to mortgage lawsuits and municipal building codes.
A teachers union and other groups contend in recent lawsuits that lawmakers crossed the state Constitution's rules for lawmaking, including ones intended to have legislation considered on its own merits and in the light of day.
Lawsuits filed by the Arizona Education Association, the Arizona Bankers Association and the League of Arizona challenged bills or parts of bills approved in August by lawmakers and signed into law Sept. 4 by Gov. Jan Brewer.
The groups argue that the legislation violates the Constitution's requirements that bills only cover one subject and that appropriations not be mixed with other legislation. They also allege that lawmakers' actions violate requirements that only topics listed in the governor's call for legislative action can be acted upon during a special session.
Lawmakers say they need flexibility to craft legislation to deal with the state's complex problems, including budget problems.
"What we're seeing here is an attack on the Legislature's very ability to appropriate," House Speaker Kirk Adams, R-Mesa, said of the league's lawsuit. "Policy is part of the budget. The two go hand in hand."
Though courts are reluctant to interfere in the legislative process, the state Supreme Court has weighed in on "structural" matters such as scope of line-item vetoes and delays in sending approved bills to governors, said Arizona State University law professor Paul Bender.
"They've shown some tendency to want to enforce those rules," he said.
A 2003 ruling by the Supreme Court on legislative leaders' challenge to line-item vetoes by then-Gov. Janet Napolitano revealed that the justices felt the Legislature had stuffed too much in budget bills in question.
The five justices — three of whom are still on the court — unanimously decided the case by ruling that the legislators weren't legally empowered to challenge the line-item vetoes.
But that was after the justices said the Legislature apparently hadn't complied with the Constitution's "single subject" requirement that legislation address separate subjects in separate bills.
The AEA's lawsuit targets provisions dealing with teacher pay, seniority rights, layoff notices and union activities, and union President John Wright said including those provisions in a big budget bill during a special session meant they escaped public scrutiny before becoming law.
"This type of policy enactment, essentially done at night and under cover, was done without any public discussion, without anybody on the legislative side stating their case for these policies and for anyone on the other side of the discussion to say why these policies weren't a good idea," Wright said. "If it comes up again, we'll welcome the debate. We didn't get to have the debate the first time."
The cities and towns league challenged provisions imposing new limits on development impact fees and building code changes. The municipalities also challenged prohibitions on providing public services and benefits to illegal immigrants.
The bankers' lawsuit challenged the repeal of a law the industry had sought to trim protections from post-foreclosure lawsuits against borrowers.
The Supreme Court has discretion on whether to rule on the groups' special-action petitions filed directly with the high court, but Bender, the law professor, said the justices may be willing to take on the constitutional issues.
Legal grounds for the bankers' lawsuit, which was filed in October, were undercut, if not erased, Monday when the Legislature re-approved its repeal of previous changes to the post-foreclosure law.
That latest action was taken during a special session. Its call specifically included the topic among subjects for legislative action.