Stocks Tumble on Eurozone Uncertainty

NEW YORK (TheStreet) -- Stocks lost ground Wednesday as worries about the stability of the eurozone bubbled up once again.

The major U.S. equity indices swooned late in the day following reports that Greek banks are seeing elevated levels of withdrawals ahead of the country's crucial general elections this weekend. The vote is being seen as a referendum on the austerity measures Greece will need to adhere to in order to remain part of the eurozone.

Adding to the concerns was news that Egan Jones cut its rating on Spain to CCC-plus from B. Reuters said the downgrade was the ratings agency's fourth cut for Spain since April.

The Dow Jones Industrial Average fell 77 points, or 0.62%, to close at 12,496. The blue-chip index, which ranged roughly 150 points during the day, has now fallen in two of the past three sessions.

The S&P 500 lost 9 points, or 0.70%, to close at 1315. The Nasdaq gave back more than 24 points, or 0.86%, to settle at 2819.

Stocks briefly went positive earlier in the session as much of the market's attention was on the morning's testimony of JPMorgan Chase ( JPM) CEO Jamie Dimon on Capitol Hill.

Within the Dow, 20 of the index's 30 components ended Wednesday down. The biggest blue-chip decliners included American Express ( AXP), Caterpillar ( CAT), DuPont ( DD) and Home Depot ( HD).

The biggest percentage gainers were Johnson & Johnson ( JNJ) and JPMorgan. Three blue-chip stocks ended Wednesday flat: Coca-Cola ( KO), AT&T ( T) and Pfizer ( PFE).

J&J's stock was boosted more than 2% by upgrades from Jefferies and JPMorgan, which lifted its rating to overweight and boosted its price target to $74 from $69. The firm cited an attractive valuation and said fundamentals "were on the upswing" at J&J. For its part, Jefferies raised its rating to buy from hold.

"Management has beaten expectations by re-engineering the financing of theSynthes merger," wrote Jefferies of J&J. "Instead of a dilutive stock issuance followed by a share buyback program, the company has borrowed stock through an accelerated share repurchase agreement, which transforms the transaction into an accretivedeal."

Shares of JPMorgan gained 1.6% as Dimon's appearance before the Senate Banking Committee drew mostly positive reviews. Dimon said JPMorgan was looking at potentially clawing back pay from the executives behind the bank's $2 billion trading loss.

The weakest sectors in the broad market were consumer cyclicals, capital goods and conglomerates. Only consumer non-cyclicals posted gains.

Wednesday's economic data was lackluster. The Commerce Department reported that retail sales fell by a slightly less than expected 0.2% in May, after falling by a downwardly revised 0.2% in April amid a drop in gasoline prices, an employment slowdown and tepid wage increases. Economists surveyed by expected that sales contracted by 0.3% in May.

Retail sales, excluding autos, fell 0.4% in May, after declining 0.3% in April.

Overall, eight out of 13 categories in the report saw declines in consumption in May, said Andrew Wilkinson, chief economic strategist at Miller Tabak, who added that the April downward revision was "adding insult to injury."

"The May sales report and the April revision throw fuel on the fire for those dovish members calling for the need for more policy stimulus in the face of a growing eurozone crisis," said Wilkinson.

The Labor Department reported that the producer price index fell a bigger-than-expected 1% in May after falling 0.2% in April amid falling commodity prices. The decline was the largest since July 2009. Economists surveyed by expected a fall of 0.7% for May.

"If this dis-inflationary trend becomes entrenched, it may actually provide some justification for aggressive monetary policy action as the Fed attempts to avert a deflationary spiral," said Millan Mulraine, senior U.S. strategist at TD Securities.

The May producer price index, excluding the food and energy components, rose 0.2% for the second straight month.

The FTSE 100 in London settled up 0.2% and the DAX in Germany fell 0.1% as Italy's borrowing costs jumped at a sale of €6.5 billion ($8.1 billion) of bonds amid chatter than Italy will follow Spain's lead in seeking a eurozone bailout -- speculation that Italian Prime Minister Mario Monti has denied.

Contagion fears across Spain and Italy could "cause some market turmoil over the next few months," said Dwight Johnston, economist at the California and Nevada Credit Union League.

In other economic news, eurozone industrial production fell 0.8% in April, the sharpest decline in four months, but still less than the expected 1% decline, according to a survey of economists by Thomson Reuters.

Uncertainty about the future of the eurozone continues to balloon as investors brace for the possibility of more macro drama in the aftermath of the critical Greek general elections on June 17.

"It is anybody's guess what the outcome will be," said Martin Mitchell, head of government trading at Stifel Nicolaus.

Peter Tuz, portfolio manager at Chase Investment Council, said if Greece leaves the euro, it would "open a Pandora's box of consequences that we can't all even think of."

Matt Lloyd, chief investment strategist at Advisors Asset Management, said Germany has a vested interest in keeping fiscally challenged countries in the euro because if "you start kicking out the fiscally challenged countries, it increases the euro's risk level, which would hurt export-driven Germany."

The benchmark 10-year Treasury was rose 18/32, pushing the yield down to 1.601%. The dollar was fell 0.22%, according to the dollar index.

The Hong Kong Hang Seng closed up 0.8% and the Nikkei in Japan finished higher by 0.6% on Wednesday.

July crude oil futures settled down 73 cents at $82.62 a barrel. August gold futures were up $5.60 to settle at $1612.80 an ounce.

In corporate news, Dell ( DELL), the PC maker, announced plans after Tuesday's closing bell to start paying dividends. The stock rose 2%.

Scotts Miracle-Gro ( SMG) said lateTuesday it expects its fiscal 2012 performance to come in below its previously disclosed outlook because of weak sales and an unfavorable product mix. The company's prior adjusted forecast was for earnings of between $2.65 and $2.85 a share. Shares lost nearly 7%.

Shares of Constant Contact ( CTCT) dropped nearly 15% after the company agreed to acquire privately SinglePlatform, a small business information network. The deal involves $65 million in cash, and also includes additional costs related to employee retention and performance incentives.

-- Written by Andrea Tse and Alexandra Zendrian in New York.

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

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