NEW YORK: Stocks fell on Monday as Europe's aid package for Spanish banks did little to alleviate investor concerns about the euro zone's finances and a slowdown in the wider global economy.
The equity market bounced in early trading, but the rally was quickly snuffed out by sellers and a sharp decline accelerated into the market's close.
Spanish bond yields rose as a bailout of up to $125 billion for the country's struggling banks failed to quell concerns that Madrid may be locked out of funding markets and forced to seek external help.
"They're borrowing more money, not doing anything about growth," Paul Zemsky, head of asset allocation at ING Investment Management in New York, said. "Today we're not worried about Spain's banking system falling off a cliff, but other than that, nothing has changed."
Spain's 10-year bond yields ended higher at 6.5 percent as an early rally in prices quickly evaporated. Some investors were concerned the new debt would put existing bondholders lower in the capital structure, which increases the risk for those holders.
"This is a realization that Spain, while providing money for its banks, is going to add to its debt-to-GDP ratio, and it's going to potentially subordinate some of the current Spanish sovereign debt, which doesn't make those bondholders happy," said Zemsky.
Investors fear a crisis in Spain would compound the currency bloc's troubles as June 17 elections loom in Greece, which many think could lead to Greece's exit from the euro zone.
The worries come at a time when economies the world over are showing signs of slowing. China's inflation, industrial output and retail sales all flagged in May. It was the second straight month of sluggish growth.
Trading volume was light on the NYSE, Nasdaq and AMEX with 6 billion shares traded, about 14 percent below its 10-day moving average. About four shares fell for every one that rose on NYSE.
U.S. companies are finding it more difficult to increase revenue now than at just about any time since the financial crisis. Firms that make up the S&P 500 are expected to boost sales by just 2.2 percent in the current quarter, according to Thomson Reuters data.
U.S. steelmakers are struggling with weak demand, rising costs and narrowing margins. Production capacity has yet to fully recover from the most recent recession.
But Apple's shares fell 1.6 percent to $571.17 after the announcement at the company's developers conference on Monday. Google's shares fell 2.1 percent to $568.50.
Did you find this article insightful?