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Stocks Sink as U.S. Manufacturing Slumps

NEW YORK ( TheStreet) -- Major U.S. stock averages fell Monday after a slump in manufacturing outweighed upbeat eurozone developments and manufacturing data from China.

The U.S. Institute for Supply Management's manufacturing index showed a decline to 49.5 in November from 51.7 in October. A reading below 50 points is indicative of contraction. Economists expected the index to fall to 51.3.

Meanwhile, the Census Bureau said Monday that construction spending rose 1.4% in October after increasing by a downwardly revised 0.5% in September. Economists forecast construction spending to rise 0.5% in October.

Republicans also announced late on Monday a new plan in a letter to President Obama that outlined $2.2 trillion in deficit reduction over the next 10 years, and a proposal to raise $800 billion in new revenue. The news failed to shift the general mood of the major indices in late trades.

The Dow Jones Industrial Average fell 60 points, or 0.46%, at 12,966, trimming the year's gain to 7%.

Breadth was negative with losers outpacing winners 22 to seven. The biggest percentage blue-chip decliners were DuPont (DD), Coca-Cola (KO), General Electric (GE), Wal-Mart (WMT) and Chevron (CVX).

Bank of America is putting off plans to revamp its lineup of bank accounts, and thereby increase monthly fees for some checking accounts, the Wall Street Journal reported. Shares fell 0.61%.

Boeing (BA) shares were down 0.35% as the aerospace giant and the Society of Professional Engineering Employees in Aerospace union, which represents the company's 23,000 engineers, tentatively agreed to resume labor talks on Tuesday, after their negotiations on a new contract ended abruptly last week.

Cisco (CSCO), Merck (MRK) and Pfizer (PFE) were the top percentage gainers.

The S&P 500 dipped 7 points, or 0.47%, at 1,409. The Nasdaq shed 8 points, or 0.27%, at 3,002.

Transportation, basic materials, conglomerates and utilities were among the weaker sector performers in the broad market. Consumer non-cyclicals, health care and technology were the only sectors in the green.

Decliners edged past advancers by a 1.5-to-1 ratio on the Big Board and a 1.2-to-1 ratio on the Nasdaq. Volumes hit 3.05 billion shares on the New York Stock Exchange and 1.65 billion shares on the Nasdaq.

"It's tempting to interpret the fall in the U.S. ISM manufacturing index ... as a temporary distortion due to superstorm Sandy. But the detail doesn't quite support this," said Paul Dales, senior U.S. economist at Capital Economics. "Although the new orders balance fell, to 50.3 from 54.2, the production index rose, to 53.7 from 52.4. If Sandy forced widespread shutdowns, then production would have fallen too. What's more, the ISM put little emphasis on Sandy in its written report, instead highlighting growing concerns over the fiscal cliff. The global economy can't be blamed either when the euro-zone and China PMIs are still rising. As such, the fiscal cliff may well be the culprit ... But if it is due to the cliff, a deal would trigger a bounce-back in the coming months."

Stocks opened Monday on a modestly strong note after Greece said it would buy back as much as €10 billion in outstanding debt and Spain made an official request for European Union bank bailout funds from the permanent European Stability Mechanism fund. Spain is set to receive €37 billion for the recapitalization of four banks.

Still, Andrew Wilkinson, chief economic strategist at Miller Tabak, said the markets later realized that the Spain request "is not the same as an official request for state-wide aid. Such a request is now unlikely before 2013 given the comfortable state of health for government funding for this year."

Another bright spot for the markets Monday was the read on the HSBC Purchasing Managers' Index for China -- a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy. It came in at 50.5 in November, up from 49.5 in October and signaling a marginal improvement of operating conditions in the Chinese manufacturing sector.

Over the weekend, U.S. Treasury Secretary Timothy Geithner indicated that he's certain the Republicans will concede to raising taxes on the rich, while House Speaker John Boehner didn't seem to think so.

"Press coverage on the fiscal cliff abounds, but there has been disappointingly little tangible progress," said Michala Marcussen, head of global economics at Societe Generale. "Should negotiations fail and the cliff come into effect (a scenario that we put a 10% probability on), the impact would be very disruptive for both markets and the real economy. Note, in this tail risk scenario, we see a 90% probability that the cliff would then be dealt with retroactively, keeping the U.S. economy out of recession."

Gold for February delivery rose $8.40 to settle at $1,721.10 an ounce at the Comex division of the New York Mercantile Exchange, while January crude oil contracts added 18 cents to close at $89.09 a barrel.

The benchmark 10-year Treasury fell 2/32 to push the yield up to 1.624%. The dollar was off 0.41%, according to the U.S. dollar index .

In corporate news, Delta Air Lines (DAL) has reached out to Singapore Airlines (SINGY) about purchasing the Asian carrier's 49% stake in Virgin Atlantic Airways, according to reports.

Delta shares decreased 3.8%.

Gravel supplier Martin Marietta Materials (MLM) is likely to explore a friendly offer for rival Vulcan Materials (VMC) rather than launch another hostile takeover attempt, the Journal reported, citing people familiar with the decision.

Vulcan Materials shares were off 1%. Martin Marietta shares gained 0.50%.

LDK Solar (LDK) slashed its full-year revenue outlook to $950 million to $1 billion, from $1.1 billion to $1.5 billion, and forecast lower-than-expected fourth-quarter revenue of $230 million to $290 million amid predictions of a drop in solar cell and panel shipments driven by soft European demand and elevated U.S. import duties.

Shares plummeted 10.3%.

Dell (DELL) shares were upgraded to "buy" from "sell" at Goldman Sachs. Shares surged 4.4%.

Deckers Outdoor (DECK) stock jumped 10.6% after shares of the footwear, apparel, and accessories company was upgraded to "buy" from "neutral" at Sterne Agee.

SuperValu (SVU - Get Report) shares surged 12.6% after reports said private-equity firm Cerberus Capital Management is open to various deal alternatives with the U.S. grocery chain, such as buying a store chain or the whole company.

Computer Sciences (CSC - Get Report) shares rose 3.2% after the technology services provider said it will sell its credit services business to Equifax (EFX - Get Report) for $1 billion in cash.

Equifax shares ticked up 4.2%.

-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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