Stocks Close Marginally Lower on Eurozone Debt Jitters


NEW YORK ( TheStreet) -- Stocks fell Monday, but finished the day well off of intraday lows, as investors warily eyed a possible resolution on Greek debt talks and soaring Portuguese borrowing costs.

The Dow Jones Industrial Average closed down 6.7 points, or 0.05%, at 12,654 after coming back from a 1% drop earlier in the day. The S&P 500 slid 3.3 points, or 0.3%, to 1,313. The Nasdaq was down 4.6 points, or 0.2%, at 2,812.

Portuguese bond yields were moving higher, sparking concerns that the country would also need a second bailout like Greece. Yields on the ten-year bond had surged more than 200 basis points to 17.26% Monday.

"At this rate, Portugal is going to move from the back to front burner in very, very short order," wrote Dan Greenhaus, chief global strategist with BTIG, in a note.

European Union leaders meet in Brussels Monday for their first summit of 2012 to finalize steps for a rescue fund of $661 billion to be up and running later this year. Greece and its private creditors, meanwhile, signaled they would agree on a deal in which investors will accept a bigger cut on their government debt holdings. The two sides are "close" to an agreement following three days of talks in Athens, according to Bloomberg.

Only when the debt swap in Greece is resolved can the country receive a second bailout from the International Monetary Fund and other European creditors, which would help Greece avoid a default. The Greece government is under growing pressure to work out a deal given that it faces a €14.5 billion bond payment on March 20. Also, before the country gets fresh funding, Germany is insisting that Athens give up some control over its budget policy.

In Europe, French bank shares were pressured after President Nicolas Sarkozy said he would impose a financial-transaction tax. A reading on consumer sentiment in the eurozone rose less than expected, according to the European Commission in Brussels. Germany's DAX closed down 1.2% while London's FTSE lost 1.1%.

In Asia, China signaled that it would hold back from further monetary easing, in particular by leaving bank reserve requirements unchanged. Japan's Nikkei Average settled 0.54% lower and Hong Kong's Hang Seng lost 1.66%.

Meanwhile, economic data suggested that demand may slowdown as U.S. consumers seek to boost their savings. The Department of Commerce reported that U.S. personal income rose 0.5% in December, beating an estimated 0.4% increase, according to Thomson Reuters, and adding to a 0.1% increase in the prior month. However, in the same report, spending was flat after a 0.1% increase in November.

No other major economic news was expected Monday, although investors are looking forward to the government's unemployment report for January at the end of the week.

With two trading days left in January, the Dow, up 3.6% for the month, is on pace for its largest monthly percentage gain since 1997. The index, down 0.5% last week, saw its first week of losses in 2012. The melt-up in the market has lost some steam in recent sessions, although many analysts say that investors will likely take this as a buying opportunity.

"Stocks overall remain very resilient, permitting the banks to correct about 3% last week without the weakness really bleeding into the broader indices," wrote Peter Tuz, president at Chase Investment Counsel. "People remain pretty skeptical about stocks ... buyers continue to aggressively take advantage of dips but many do so only grudgingly."

In corporate news, Pep Boys ( PBY), the automotive service and retail chain, announced Monday that it will be acquired by the Gores Group, an investment firm led by billionaire Alec Gores, for about $1 billion. Pep Boys will be acquired for $15 a share in cash, a 24% premium over Friday's $12.08 closing price. The deal, which has been unanimously approved by company's board now goes to vote by shareholders. The stock surged 24% to $14.93 a share Monday.

Bank of America ( BAC) erased 3% to $7.07 after being cut to "neutral" from "buy" by Goldman Sachs ( GS), whose analysts say they prefer Citigroup ( C) over Bank of America. They explained that they see "a clearer path for Citigroup to return capital" to shareholders in the form of buybacks and dividends, versus "higher execution risk" at Bank of America during the next 12 to 18 months as it needs to significantly reduce costs "without reducing earnings power, which is challenging."

In other Citigroup news, Chairman Richard Parsons is considering stepping down after three years in the post, The Wall Street Journal reported, citing people familiar with the situation. Parsons, 63 years old, is expected to decide by early March, these people said. Regardless of his decision, the bank expected to keep the posts of chairman and CEO separate, the newspaper said. The stock was down 2.1% to $30.23.

Switzerland's ABB reached an agreement to buy electrical parts maker Thomas & Betts ( TNB) for $3.9 billion, or $72 a share, a 24% premium to its closing price Friday of $57.95. Thomas & Betts shares soared 23% to $71.31.

Apollo Global Management ( APO) is leading a group of investors that has become the lead bidder for El Paso's ( EP) oil-exploration unit. The group is in advanced talks to buy the unit for about $7 billion, according to the Journal, which cited people familiar with the situation. Shares of Apollo declined 5.1% while shares of El Paso were unchanged.

Philips Electronics ( PHG), the world's biggest lighting maker, swung to a fourth-quarter loss of €160 million ($211 million), a reversal from a year-earlier profit of €465 million. Revenue rose 3.3% to €6.79 billion. Philips said its outlook for 2012 is clouded due to "uncertainty in the global economy, and Europe in particular." Shares slipped 1.7% to $20.03.

March oil futures dropped 78 cents to $98.78 a barrel. In other commodities, April gold futures fell $1 to settle at $1,734.40.

The dollar index rose 0.4%. The benchmark 10-year Treasury climbed 15/32, diluting the yield to 1.847%.

-- Written by Andrea Tse and Chao Deng in New York.

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

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