Stock futures continue to fall

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Published: May 20,2010

Tags: debt, global markets, investing, stocks and bonds

A sell-off in stock futures accelerated today as the euro resumed its fall.

The drop in futures comes ahead of the Labor Department’s weekly unemployment report that is expected to show initial claims for jobless benefits dipped modestly last week.

Investors are focusing more on the health of Europe’s economy than the ongoing domestic recovery, which had driven stocks higher earlier this year.

The euro fell again, and continues to hover near a four-year low. The currency, used by 16 countries in Europe, has become a key indicator of confidence in the continent’s ability to contain growing debt problems in countries like Greece, Portugal and Spain. The euro fell to $1.2334, a day after touching a four-year low of $1.2146.

“There’s a question out there now that potentially we could be talking about a collapse of the eurozone or countries breaking away from the euro,” said Tim Quinlan, an economist at Wells Fargo & Co. As recently as four months ago, that wasn’t even considered a possibility, Quinlan said.

Such a stark change in views has spooked investors, and the euro is now largely driving stock trading. Major European indexes gave up their morning gains and are now sharply lower after the euro retreated.

Greek workers are again in the streets protesting recently approved budget cuts that were necessary for the country to receive a bailout. Greece was able to repay debt that came due yesterday only because it had access to a rescue package from the European Union and International Monetary Fund.

Ahead of the opening bell, Dow Jones industrial average futures fell 125, or 1.2 percent, to 10,280. Standard & Poor’s 500 index futures fell 16.50, or 1.5 percent, to 1,093.40, while Nasdaq 100 index futures dropped 28.75, or 1.5 percent, to 1,839.50.

As investors pulled out of stocks and other risky investments like oil, they moved into safer investments such as U.S. Treasurys.

In the U.S, economic signs continue to point to a slow, steady recovery. But that hasn’t been enough to even offset overseas concerns.

Economists polled by Thomson Reuters predict weekly jobless claims fell to 440,000 last week from 444,000 a week earlier. It would mark the fifth straight weekly decline, but the total number of claims would still be above the level that economists believe is necessary to steadily create jobs.

Weekly claims have been stuck around 450,000 since January, unable to break closer to the 425,000 range that is considered a key indicator that employers are regularly hiring new workers.

High unemployment remains one of the biggest obstacles to a sustained domestic recovery. Analysts say that the economy will only improve modestly until the unemployment rate drops sharply from its current level of 9.9 percent.

Stocks are trying to steady after falling again Wednesday. Ongoing concerns about Europe’s economy and a disappointing report on the domestic housing market sent stocks lower. A trade group said the number of people behind on repaying mortgages hit a record high in the first quarter, signaling foreclosures might climb again in the coming months. The housing market has been slow to recover from the recession.

The Dow dropped for the ninth time in the past 12 trading sessions. However, it pared most of its loss late in the day. It closed down 67 points after falling as much as 186.

Bond prices rose Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.37 percent late Wednesday.

Oil for June delivery fell $1.54 to $68.33 a barrel in electronic trading on the New York Mercantile Exchange.

Overseas, Britain’s FTSE 100 fell 1.3 Germany’s DAX index dropped 1.6 percent, and France’s CAC-40 plummeted 2.6 percent.

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