Stocks extend slide after euro falls to 4-year low; Traders worry that problems will hit US

Stocks extend drop after euro hits 4-year low

NEW YORK — Stocks slid for a third day Monday on still growing concerns that Europe’s debt problems will undermine the economic recovery in the U.S.

The Dow Jones industrial average fell about 90 points in afternoon trading. It has fallen seven of the last nine days. The Dow and broader indexes lost more than 1 percent.

Stocks and other assets seen as risky are getting hit because traders have so many unanswered questions about how Europe will pull itself from its financial mess without hurting its recovery. Because economies around the world are dependent on one another, the broader concern is that Europe’s problems will halt a rebound in the U.S. and also in Asia.

The move to safety drove the dollar, Treasurys and gold higher. The euro, which is used by 16 countries in Europe, fell to a four-year low. The spike in the dollar, in turn, hit prices for commodities such as oil.

Oil fell below $70 a barrel for the first time since February. Oil is priced in dollars so a stronger dollar deters investment in oil. Crude oil fell $1.71 to $69.90 per barrel on the New York Mercantile Exchange.

The ICE Futures US dollar index, which measures the dollar against a basket of six currencies, rose 0.5 percent. The euro fell to as low as $1.2237 early Monday before moving higher. The plunging euro has been driving trading around the globe in recent days.

Energy stocks led the market lower as the price of oil fell. Shares of consumer staples companies, which are seen as safer bets in weak economies, managed small gains.

Schlumberger Ltd., which provides services to oil companies, fell 3 percent. Procter & Gamble Co., which makes Tide detergent and Gillette razors, rose 1 percent.

Investors are questioning whether steep budget cuts in countries including Greece, Spain and Portugal will hinder an economic recovery in Europe and in turn, the U.S. Traders are also concerned that loan defaults could ripple through to banks in stronger countries like Germany and France. The fear is that the world banking system could see a replay of the losses that hobbled financial institutions in late 2008.

The austerity measures are required under a nearly $1 trillion bailout program the European Union and International Monetary Fund agreed to last week. The rescue package provides access to cheap loans for European countries facing mounting debt problems.

Investors in the U.S. who had been growing more confident about a rebound in this country now are questioning whether the problems in Europe will disrupt a recovery.

“We need to quantify how much Europe can hurt us,” said Philip Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis. He said it could take a month or two before investors have a better sense of whether the debt problems in Europe will spread.

During that time, the market is likely to see more of the volatility and big swings that have marked trading over the past two weeks.

In early afternoon trading, the Dow fell 92.28, or 0.9 percent, to 10,527.88. It had been down as much as 184 points. The Standard & Poor’s 500 index fell 10.74, or 1 percent, to 1,124.94, while the Nasdaq composite index fell 21.06, or 0.9 percent, to 2,325.79.

Three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 478 million shares, compared with 575 million traded at the same point Friday.

Stocks remained volatile last week as investors first cheered the European bailout program before becoming skittish about how it would affect the continent’s economy. The Dow tumbled 163 points Friday as the euro plummeted and declining oil prices hurt energy companies.

Bond prices rose Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.42 percent from 3.46 percent late Friday.

Gold rose $6.80 to $1,234.60 an ounce.

Investors looking for signs of an improving domestic economy received mixed data.

A disappointing report on regional manufacturing from the New York Federal Reserve weighed on sentiment. The Empire State manufacturing index fell to 19.11 this month from 31.86 in April. Economists polled by Thomson Reuters, on average, had forecast a reading of 30.

A forecast from home-improvement retailer Lowe’s Cos. also fell short of expectations. The stock fell 92 cents, or 3.5 percent, to $25.15.

Home Depot Inc., Wal-Mart Stores Inc. and Target Corp. also are expected to post quarterly numbers this week. Investors will be looking for any sign of growth in consumer spending. Stronger spending by consumers is considered vital to a sustained economic rebound.

Meanwhile, Universal Health Services Inc. agreed to buy Psychiatric Solutions Inc. for about $2 billion in cash. Japan’s second largest drug maker, Astellas Pharma Inc. agreed to purchase U.S. cancer drug company OSI Pharmaceuticals Inc. for $4 billion in cash.

Traders see dealmaking as a sign of economic recovery because it means businesses are more comfortable spending reserves to expand their operations.

Universal Health rose $2.66, or 6.8 percent, to $41.70 and Psychiatric Solutions fell 24 cents, or 0.7 percent, to $32.39.

Among stocks, Schlumberger fell $1.90, 2.9 percent, $62.98. Procter & Gamble rose 61 cents, or 1 percent, to $63.15.

The Russell 2000 index of smaller companies rose 8.64, or 1.2 percent, to 685.34.

Britain’s FTSE 100 fell 0.1 percent, Germany’s DAX index gained 0.1 percent, and France’s CAC-40 fell 0.5 percent. Japan’s Nikkei stock average fell 2.2 percent.