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U.S. stocks drop on fears of budgetary impasse, Dow slides 0.56%

Published 12/13/2012, 04:52 PM
Updated 12/13/2012, 04:53 PM
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Investing.com - U.S. stocks fell on Thursday over fears U.S. policymakers remain at odds over ways to avoid a budgetary impasse that could push the economy into a recession next year.

Fears the country will drive over its so-called fiscal cliff, a combination of tax hikes and spending cuts due to take effect at the same time early next year, offset news that the Federal Reserve will ramp up its quantitative easing program by USD45 billion a month.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.56%, the S&P 500 index was down 0.63%, while the Nasdaq Composite index slid 0.72%.

Stocks fell amid a risk-off trading session on fears the U.S. fiscal cliff is fast approaching without a budget deal in place, which could contract the economy by 0.5%, according estimates from the nonpartisan Congressional Budget Office.

The White House and Congressional Republicans continued to differ on Thursday over how to narrow deficits and pay down debts as part of a budget agreement for 2013.

Democrats have been calling for tax hikes on top U.S. earners, while opposition Republicans have called more for capping tax deductions to increase revenue and cutting more spending elsewhere.

House Speaker John Boehner, an Ohio Republican, said earlier Thursday the White House wasn't taking his party's ideas serious enough, which sent shudders across the U.S. equities markets and investors chasing safe-haven dollar positions.

Fiscal uncertainty quickly diverted investor attention away from the Federal Reserve's recent announcement that it will continue stimulating the U.S. economy by adding an additional USD45 billion to its bond-buying program, a move that ups the total asset purchases from banks to USD85 billion a month, which weakens the dollar to fuel recovery, sending stock prices higher in the process.

Elsewhere, the U.S. Commerce Department reported earlier that U.S. retail sales increased by 0.3% in November from October, whose rates contracted by 0.3%.

November's figures still missed market forecasts for a gain of 0.5%, which further stoked risk-off trading sentiments.

The Department of Labor, meanwhile, reported earlier the number of people filing for initial jobless claims fell by 29,000 to 343,000 last week, beating expectations for a decline of 2,000.

The previous week’s figure was revised up to 372,000 from 370,000.

Meanwhile, official data showed that producer price inflation in the U.S. fell 0.8% last month, compared to forecasts for a 0.5% decline.

Leading Dow Jones Industrial Average performers included Caterpillar, up 0.47%, Wal-Mart Stores, up 0.15%, and Cisco Systems, up 0.05%.

The Dow Jones Industrial Average's worst performers included Merck, down 1.96%, UnitedHealth Group, down 1.57%, and Boeing, down 1.52%.

European indices, meanwhile, finished lower.

After the close of European trade, the EURO STOXX 50 fell 0.10%, France's CAC 40 fell 0.10% as well, while Germany's DAX 30 finished down 0.43%. Meanwhile, in the U.K. the FTSE 100 fell 0.27%.     

On Friday, the U.S. is to release official data on consumer inflation, the capacity utilization rate, industrial production and preliminary data on manufacturing activity.








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