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US STOCKS-Wall St retreats, led lower by financials

Published 11/08/2010, 03:10 PM
Updated 11/08/2010, 03:12 PM

* Financial shares weigh following a stellar week

* Dollar strengthens on euro debt worries, G20 meeting

* Indexes: S&P off 0.3 pct, Dow down 0.4 pct, Nasdaq flat (Updates to late afternoon, changes byline)

By Angela Moon

NEW YORK, Nov 8 (Reuters) - Wall Street retreated from a two-year high on Monday, weighed down by financial stocks and a stronger dollar.

The broad S&P 500 has risen five straight weeks and nine of the past 10, supported by the Federal Reserve's plan to buy $600 billion of Treasuries to lower interest rates and reinvigorate a sluggish economy.

With those gains, traders said most S&P sectors are susceptible to a decline.

Financial stocks, which were top gainers in the past few sessions, fell, with the S&P financial index off 0.8 percent following a 6.9 percent weekly advance.

"We just had gains that is probably a year's worth in just 2 1/2 months. People are feeling a little extended, and there is psychological and technical resistance out there," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

"Will today's decline development into something on the down side? Probably not, but we've got to keep watching where the dollar is headed. No matter how you slice it, the dollar is critical to this rally, especially post-Fed."

The dollar was up 0.6 percent against major currencies on renewed worries about budget problems in Ireland and other debt-weakened euro zone members. Since the euro zone debt crisis, a popular trade has been to sell the S&P 500 when the euro falls against the dollar.

The Dow Jones industrial average was down 45.94 points, or 0.40 percent, at 11,398.14. The Standard & Poor's 500 Index was down 3.24 points, or 0.26 percent, at 1,222.61. The Nasdaq Composite Index was down 0.49 points, or 0.02 percent, at 2,578.49.

Analysts said the G20 meeting, which will be hosted in South Korea on Thursday and Friday, will be the next catalyst in moving the dollar.

TECHNICAL RESISTANCE

The S&P 500 faces strong resistance around 1,228, which would retrace 61.8 percent of the decline between its historic highs in 2007 and the 12-year low in March 2009. This is one of the Fibonacci retracements that chartists widely follow and many times coincide with buying or selling markers.

In April, a first attempt to breach that level failed and preceded a decline that took the index to its 2010 low in early July.

Declines in bank shares could go beyond profit-taking from last week's gains. The Fed's pledge to keep interest rates near record lows was viewed as hurting bank profits.

"Negative interest rates are not healthy for financial stocks, and banks still have a lot of bad debt on their books," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

"I would think (financials) would continue to underperform as opposed to the tech sector, where balance sheets are a lot more healthy and earnings growth is a lot more visible."

Gains in technology stocks, including Apple Inc, up 0.5 percent to $318.80, and the semiconductor sector, up 0.2 percent, kept the Nasdaq near break-even.

Intel Corp added 0.5 percent to $21.34 after UBS raised its rating on the world's largest chipmaker and said it expects Intel's next generation processors to drive growth in 2011..

Shares of coal producers rose on strong global demand for steel-making coal and renewed talk of mergers.

Shares of Alpha Natural Resources rallied 7.3 percent to $47.70, while Arch Coal gained 5 percent to $29.71. Consol Energy rose 3.8 percent to $40.79. (Reporting by Angela Moon, Editing by Kenneth Barry)

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