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Stocks Slump as U.S. and Eurozone Uncertainties Fester

NEW YORK ( TheStreet) -- Major U.S. stock averages slumped Tuesday as eurozone troubles continued to fester amid a finance ministers meeting and signs of gridlock in the U.S. "fiscal cliff" talks.

The Dow Jones Industrial Average dropped 14 points, or 0.11%, to 12,952. The blue-chip index had started the session up 6.2% this year.

Breadth was slightly negative, with losers outnumbering winners 16 to 14. The biggest blue-chip decliners were Home Depot (HD), AT&T (T), Verizon (VZ) and Chevron (CVX).

Top gainers included Hewlett-Packard (HPQ), Intel (INTC) and Wal-Mart (WMT).

The S&P 500 closed down 2 points, or 0.17%, at 1,407. The Nasdaq was lost 6 points, or 0.18%, to 2,997.

The stronger sectors in the broad market were transportation, health care, energy and conglomerates. The weaker sectors included technology, services, financials and consumer cyclicals.

Decliners were outpacing advancers incrementally on the New York Stock Exchange and by a 1.1-to-1 ratio on the Nasdaq. Volumes totaled 3.20 billion shares on the Big Board and 1.76 billion on the Nasdaq.

"Despite all the valid concerns over the fiscal cliff, the recent 9% sell-off has set the market up for the traditional seasonal year-end rally, and possibly carrying over in to a January Effect rally," said Mary Ann Bartels, head of U.S. technical analysis at Bank of America. "Our Volume Intensity Model has moved positive and the weekly price momentum stochastic model has given an oversold buy reading similar to June '12 and July/Sept '11."

" The market has regained the 200-day moving average and the 1,405 level. The next big hurdle is 1435," she said. "Above this level would refresh the potential for a sustained rally to target a move toward 1,450-1,500. Important support to hold is the 200-dma at 1384.74. However, 2013 is setting up to be volatile, in our view, as the negative divergences are still in place with market breadth and transports not confirming the September highs."

In one of the latest developments in the U.S. budget negotiations, the White House rejected a counteroffer by Republicans Monday on tax and spending cut proposals, explaining that it would not fulfill President Barack Obama's promise to increase tax rates on the richest Americans.

"In recent years, negotiations over fiscal policy have followed a familiar pattern," said Jeremy Lawson, senior economist at BNP Paribas. "Phase 1 (the honeymoon) involves Democrats and Republicans making soothing noises about the importance of working together and expressing guarded optimism about getting a deal done. This quickly gives way to Phase 2 (the confrontation), during which both parties' rhetoric hardens as they play to their bases and seek to gain the upper hand in the court of public opinion. Phase 3 (the bargain) only begins at the 11th hour when the two sides take negotiations more seriously as they try to avoid an outcome that neither party really wants."

"The latest news on the fiscal cliff negotiations suggests that we have moved into the confrontation phases," said Lawson.

Investors awaited developments from the European Union finance ministers' meeting in Brussels on the topic of a single banking supervisor in the region.

There has been much friction between member states over the details of the plan, with German Finance Minister Wolfgang Schaeuble contending that it would be challenging to get the green light on such a plan from the German parliament and questioning whether it was realistic to believe that one European institution would be able to oversee thousands of banks across Europe.

"Despite the push for greater integration, it seems as though there's mixed feelings surrounding plans for a single European banking supervision, and we may see the EU persistently struggle to meet on common ground as the debt crisis continues to dampen the fundamental outlook for the region," said David Song, currency analyst at DailyFX.

Gold for February delivery dropped $25.30 to settle at $1,695.80 an ounce at the Comex division of the New York Mercantile Exchange, while January crude oil contracts slipped 59 cents to close at $88.50 a barrel.

The benchmark 10-year Treasury rose 4/32 to dilute the yield to 1.613%. The dollar was off 0.29%, according to the U.S. dollar index.

In corporate news, Geron (GERN) said it would end development of GRN1005, an experimental brain cancer drug, and plans to undergo a restructuring that includes cutting its work force by 40%. It also said it plans to replace its chief financial officer. Shares declined 23%.

Cerberus Capital Management is in talks to join Virtu Financial's bid for brokerage Knight Capital Group (KCG), The Wall Street Journal reported, citing people familiar with the discussions. Knight Capital shares closed unchanged at $3.33.

Big Lots (BIG) posted a third-quarter loss of 10 cents a share on sales of $1.13 billion. Analysts forecast a loss of 24 cents a share on revenue of $1.14 billion. The retailer raised its outlook for the year. Shares jumped 11.5%.

AutoZone (AZO) reported first-quarter earnings of $5.41 a share on revenue of $2 billion; analysts were expecting earnings of $5.39 a share on revenue of $2.02 billion. Margins improved at AutoZone during the quarter, but domestic same-store sales increased by a mere 0.2%.

AutoZone also announced that it has entered into an agreement to purchase the assets and select liabilities of AutoAnything, an online retailer of specialized automotive products. Shares slid 3%.

Pep Boys (PBY) said on Monday it swung to a third-quarter loss as revenue fell 2.4% to $509.6 million. Same-store sales decreased 2.7%. Shares slumped 10.4%.

Struggling Finnish mobile-phone maker Nokia (NOK) plans to put its head office up for sale for €170 million as it aims to reduce costs and strengthen profitability. ADRs were up 5.5% on Tuesday.

Toll Brothers (TOL - Get Report) shares fell 1.8% after the homebuilder booked stronger-than-anticipated fourth-quarter sales as the company saw cancellation rates decline and net signed contracts rise.

Shares of internet company IAC/InterActiveCorp (IACI) slumped 7.8% after being downgraded to "sell" from "neutral" at Goldman Sachs.

Shares of casino and resorts operators Wynn Resorts ( WYNN ) and Las Vegas Sands (LVS - Get Report) dipped 2.9% and 2.8%, respectively, amid news that Chinese officials are ramping up their inspections on mainland China and Macau casinos.

-- 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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Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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