PARIS | Thu Dec 15, 2011 2:04am EST
At 0703 GMT, futures for Euro STOXX 50, for Germany's DAX and for France's CAC were down 0.3-0.4 percent.
Showing posts with label Europe. Show all posts
Showing posts with label Europe. Show all posts
Friday, December 16, 2011
Europe Factors-Shares seen halting week-long sell-off
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Europe debt woes prompt year-end flight from risk
A man is reflected on an electronic board displaying stock prices outside a brokerage in Tokyo November 10, 2011.
Credit: Reuters/Toru HanaiBy Alex RichardsonSINGAPORE | Wed Dec 14, 2011 10:17pm EST
SINGAPORE (Reuters) - Asian shares fell into bear market territory for the year and commodities and the euro nursed stinging losses on Thursday, after fears that Europe's debt crisis is still worsening prompted investors to dump riskier assets and huddle in the safety of the dollar and Treasuries.
The gloomy mood was not improved by a private sector survey indicating China's factory output shrinking again in December, adding to the headwinds facing a global economy struggling with sluggish U.S. growth and the euro zone sliding back into recession.
"We're quite bearish about the world at the moment," said Damien Boey, equity strategist at Credit Suisse in Sydney. "You're looking at basically the three major economies in the world causing problems."
The market view that a European Union summit last week had failed to produce a solution to the crisis was reinforced when Italy was forced to pay an eye-watering 6.47 percent on 5-year bonds on Wednesday, a record borrowing cost for the euro era.
Japan's Nikkei fell 1.3 percent and MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS was down 1.8 percent, following losses of around 1 percent on Wall Street and a steeper sell-off in Europe. .T .N .EU .L
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HSBC China flash PMI: link.reuters.com/hyd55s
Japan BOJ Tankan: link.reuters.com/pez55s
Euro zone crisis in graphics: r.reuters.com/hyb65p
Interactive timeline: link.reuters.com/rev89r
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The MSCI Asia ex-Japan is down 20 percent for 2011 -- the rule-of-thumb definition of a bear market -- while the Nikkei has lost about 17.5 percent. Both have underperformed global equities .MIWD00000PUS, which have lost around 12.5 percent, and U.S. stocks .SPX, which are only down around 3.5 percent.
Europe remains investors' biggest worry, with markets still braced for ratings agency downgrades of euro zone sovereigns.
"Markets are frustrated and disappointed, waiting for a road map on the resolution of the two-year-old debt crisis," said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore. "Risk assets are all down. The debt crisis will be with us at least through the first half of 2012."
Equity losses in Hong Kong .HSI and Shanghai .SSEC deepened after the release of HSBC's China flash PMI, the latest piece of data to show the world's second largest economy losing steam, but reaction in broader markets was muted.
COMMODITY SLIDE
Wednesday's stock market declines were dwarfed by carnage in commodity markets, where oil, gold and copper shed 4-5 percent.
Gold has been hammered in recent days as fund managers liquidate their holdings, either to cover losses elsewhere or to lock in profits on an asset that is still up more than 10 percent for the year.
"Some macro hedge funds are liquidating gold holdings and taking profits in a difficult year," said James Steel, chief technical analyst at HSBC.
The precious metal edged down a little further on Thursday to around $1,572 an ounce, while U.S. crude oil inched up to $95.20 a barrel and Brent crude bounced more than 50 cents to around $105.60.
The euro fell as low as $1.2944, its weakest level since January 11, and was later steady around $1.2990.
A downgrade by ratings agency Fitch of five major European financial groups, including France's Credit Agricole
This comes on top of the prospect of further cuts by rival Standard & Poor's, which warned earlier this month it could downgrade the ratings of 15 of the 17 euro zone members.
"I can see the U.S. dollar keep trending higher while the euro flounders," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
(Additional reporting by Miranda Maxwell in Melbourne, Jane Lee in Kuala Lumpur and Frank Tang in New York; Editing by Richard Borsuk)
Thursday, December 15, 2011
Europe debt woes prompt year-end flight from risk
A man is reflected on an electronic board displaying stock prices outside a brokerage in Tokyo November 10, 2011.
Credit: Reuters/Toru HanaiBy Alex RichardsonSINGAPORE | Wed Dec 14, 2011 10:17pm EST
SINGAPORE (Reuters) - Asian shares fell into bear market territory for the year and commodities and the euro nursed stinging losses on Thursday, after fears that Europe's debt crisis is still worsening prompted investors to dump riskier assets and huddle in the safety of the dollar and Treasuries.
The gloomy mood was not improved by a private sector survey indicating China's factory output shrinking again in December, adding to the headwinds facing a global economy struggling with sluggish U.S. growth and the euro zone sliding back into recession.
"We're quite bearish about the world at the moment," said Damien Boey, equity strategist at Credit Suisse in Sydney. "You're looking at basically the three major economies in the world causing problems."
The market view that a European Union summit last week had failed to produce a solution to the crisis was reinforced when Italy was forced to pay an eye-watering 6.47 percent on 5-year bonds on Wednesday, a record borrowing cost for the euro era.
Japan's Nikkei fell 1.3 percent and MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS was down 1.8 percent, following losses of around 1 percent on Wall Street and a steeper sell-off in Europe. .T .N .EU .L
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
HSBC China flash PMI: link.reuters.com/hyd55s
Japan BOJ Tankan: link.reuters.com/pez55s
Euro zone crisis in graphics: r.reuters.com/hyb65p
Interactive timeline: link.reuters.com/rev89r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The MSCI Asia ex-Japan is down 20 percent for 2011 -- the rule-of-thumb definition of a bear market -- while the Nikkei has lost about 17.5 percent. Both have underperformed global equities .MIWD00000PUS, which have lost around 12.5 percent, and U.S. stocks .SPX, which are only down around 3.5 percent.
Europe remains investors' biggest worry, with markets still braced for ratings agency downgrades of euro zone sovereigns.
"Markets are frustrated and disappointed, waiting for a road map on the resolution of the two-year-old debt crisis," said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore. "Risk assets are all down. The debt crisis will be with us at least through the first half of 2012."
Equity losses in Hong Kong .HSI and Shanghai .SSEC deepened after the release of HSBC's China flash PMI, the latest piece of data to show the world's second largest economy losing steam, but reaction in broader markets was muted.
COMMODITY SLIDE
Wednesday's stock market declines were dwarfed by carnage in commodity markets, where oil, gold and copper shed 4-5 percent.
Gold has been hammered in recent days as fund managers liquidate their holdings, either to cover losses elsewhere or to lock in profits on an asset that is still up more than 10 percent for the year.
"Some macro hedge funds are liquidating gold holdings and taking profits in a difficult year," said James Steel, chief technical analyst at HSBC.
The precious metal edged down a little further on Thursday to around $1,572 an ounce, while U.S. crude oil inched up to $95.20 a barrel and Brent crude bounced more than 50 cents to around $105.60.
The euro fell as low as $1.2944, its weakest level since January 11, and was later steady around $1.2990.
A downgrade by ratings agency Fitch of five major European financial groups, including France's Credit Agricole
This comes on top of the prospect of further cuts by rival Standard & Poor's, which warned earlier this month it could downgrade the ratings of 15 of the 17 euro zone members.
"I can see the U.S. dollar keep trending higher while the euro flounders," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
(Additional reporting by Miranda Maxwell in Melbourne, Jane Lee in Kuala Lumpur and Frank Tang in New York; Editing by Richard Borsuk)
Wednesday, December 14, 2011
Fed sees risks from Europe, some improvement in U.S.
Federal Reserve Chairman Ben Bernanke delivers opening remarks at a conference on ''Small Business and Entrepreneurship during an Economic Recovery'' at the Federal Reserve in Washington, November 9, 2011.
Credit: Reuters/Hyungwon KangBy Mark Felsenthal and Pedro da CostaWASHINGTON | Tue Dec 13, 2011 9:15pm EST
WASHINGTON (Reuters) - The Federal Reserve on Tuesday warned that turmoil in Europe presents a big risk to the U.S. economy, leaving the door open to possible further steps to boost growth even though it noted a somewhat stronger labor market.
The central bank said the U.S. economy was "expanding moderately" despite an apparent slowing in the world economy. But while there had been "some" improvement in the job market, unemployment remained elevated and housing depressed, it said.
"Strains in global financial markets continue to pose significant downside risks to the economic outlook," the Fed said after a policy meeting, alluding to pressures stemming from the debt crisis in the euro zone, which has raised concerns about tighter credit in the United States.
Some investors had speculated that the Fed might show more urgency about moving ahead with new measures to help the economy.
U.S. stock prices fell, while prices for government debt rose. The dollar, which has been pressured by the Fed's huge-bond-buying programs, gained against the euro.
The Fed's statement was little changed from the one made after its last meeting in early November, although the U.S. central bank pinned uncertainty for the U.S. economy more squarely on events in Europe.
While in November it said risks to the outlook included global strains, on Tuesday it cited only the risk of volatility abroad.
Most economists have said the Fed's next meeting on January 24-25 would be the more likely occasion for any new moves to add to the U.S. central bank's already extraordinary push to bring down borrowing costs and help growth.
FOCUSING ON RISKS
Tuesday's statement touched only lightly on signs of improvement in the economy's performance.
"They are certainly ready to lean against the wind should the economy falter," said Cary Leahey, managing director at Decision Economics in New York.
The Fed offered no new guidance on the changing way it communicates its policies to financial markets; Fed Chairman Ben Bernanke has made increased transparency a hallmark of his six years in charge of the central bank.
It also repeated that it expects inflation to settle at levels at or below those consistent with its price stability mandate.
For a second time running, Chicago Fed President Charles Evans dissented against holding policy steady, saying he favored additional easing now.
The U.S. central bank has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related bonds in a further attempt to stimulate a robust recovery.
Fed officials are divided among those who think high unemployment and sluggish growth require more action and those who view the central bank's already-aggressive efforts as bordering dangerously on an invitation to inflation.
Some influential policymakers, including Vice Chair Janet Yellen, have suggested they would be inclined to take additional steps if growth fails to pick up.
LOOKING TO 2012
Changes to the Fed's voting line-up for 2012 will remove three policymakers known to favor a hard line against inflation, while adding only one such "hawk," suggesting support for further easing may strengthen in coming months.
The Fed's activist approach to pulling the economy out of recession and buoying a tepid recovery stands in contrast to the European Central Bank, which has been more tentative. The ECB held interest rates steady until November before delivering two rate cuts as the euro zone began to slide toward economic contraction.
Moreover, ECB President Mario Draghi disappointed financial markets last week by downplaying prospects the central bank would launch an aggressive bond-buying program to ease strains in the region.
So far, the U.S. economy has shown little impact from the events in Europe.
The jobless rate tumbled 0.4 percentage point to 8.6 percent in November, factory activity has quickened and businesses are restocking depleted shelves.
Consumer spending also appears reasonably solid, although a softer-than-expected report on November retail sales on Tuesday offered a hint that spending could be flagging.
The U.S. economy expanded at a 2.0 percent annual rate in the third quarter, a welcome acceleration from a sub-1 percent pace over the first half of the year. Forecasters hope growth will top a 3 percent rate in the current quarter.
However, analysts say the recovery's current strength is partly a snapback from the weakness earlier in the year and caution that a return to more sluggish growth is likely, particularly with a European recession brewing.
INTERNAL DEBATE
Many observers believe the Fed will take steps to stimulate growth in 2012, first through communications measures that drive home the expectation that interest rates will not rise for a long time and then possibly through more bond buying.
Yellen has said the Fed could reinforce its ultra-accommodative monetary stance by publishing policymakers' forecasts for the path of interest rates. Officials are also debating whether to adopt an explicit target for inflation.
The first step would reassure skittish markets that the Fed is not about to tighten policy any time soon. The latter would aim to dispel any doubts about the central bank's commitment to keeping inflation low.
Top officials have also remained open to adding bonds to the central bank's already-bloated portfolio.
Some have said the Fed should resume purchases of mortgage-backed securities to help revive the depressed housing market; others would prefer to stick with purchases of U.S. government debt.
(Additional reporting by David Lawder; Editing by Andrea Ricci, Tim Ahmann and Dan Grebler)
Wednesday, November 30, 2011
EMERGING MARKETS-Latam stocks mixed on U.S. data, Europe fears
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Tuesday, November 29, 2011
Dow, S&P rise on Europe hopes, strong confidence data
Traders work on the floor of the New York Stock Exchange November 28, 2011.
Credit: Reuters/Brendan McDermidBy Ryan VlastelicaNEW YORK | Tue Nov 29, 2011 1:37pm EST
NEW YORK (Reuters) - Stocks mostly rose for a second straight day on Tuesday as a rebound in consumer confidence and soothed fears over Europe whetted investors' appetite for risky assets.
In a positive sign for the euro zone, Italian bond yields fell from session highs, though they were still at record high rates. In the auction, Italy's government sold 7.5 billion euros of three- and 10-year bonds, close to the upper end of its target range.
In addition, investors also eyed a meeting of European officials in hopes they will make a step forward in resolving the region's debt crisis.
"It is a great sign that the auction was oversubscribed, suggesting that we seem to be moving forward with progress there," said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management.
"That said, the yields remain quite high, so we're not sounding an all-clear just yet," added Zemsky, who helps oversee $445 billion.
The Conference Board, an industry group, said its index of consumer confidence jumped to its highest level since July, handily topping economists' forecasts.
"I don't know how long the impact will last, but it (consumer confidence data) did give us a nice pop, especially coming on the growing optimism that a European deal will be done," said Phil Flynn, senior market analyst with PFG Best in Chicago.
The Dow Jones industrial average .DJI rose 68.46 points, or 0.59 percent, at 11,591.47. The Standard & Poor's 500 Index .SPX added 6.16 points, or 0.52 percent, to 1,198.71. The Nasdaq Composite Index .IXIC slipped 5.27 points, or 0.21 percent, to 2,522.07.
Weakness in some large-cap Internet stocks forced the Nasdaq to give up its morning gains. Amazon.com Inc (AMZN.O) fell 2.3 percent to $189.62 while eBay Inc (EBAY.O) was off 1.9 percent at $29.11. Both names rallied on Monday following a record Thanksgiving weekend for sales.
Despite the pullback, retailers remain optimistic about the holiday shopping season after the strong Black Friday and Cyber Monday shopping days.
Among other Internet names, Netflix Inc (NFLX.O) tumbled 5.5 percent to $66.13 and U.S.-listed shares of Ctrip.com (CTRP.O) were off 3.4 percent at $26.05.
AMR Corp (AMR.N) plunged 79 percent to about 34 cents a share after the parent of American Airlines filed for bankruptcy protection and named a new chairman and chief executive. The stock was halted more than a dozen times throughout the day.
Tiffany & Co (TIF.N) sank 7 percent to $66.60 after the luxury retailer gave a holiday quarter profit outlook that missed Wall Street's expectations, a sign that its recent pace of sales gains was slowing.
In other economic data, U.S. single-family home prices declined in September, highlighting the fragility of a market that is struggling to get back on its feet, according to the S&P/Case-Shiller composite index.
On Monday, U.S. stocks rebounded sharply from seven days of losses, with the S&P closing up nearly 3 percent.
(Reporting by Ryan Vlastelica; Editing by Jan Paschal)
Europe struggles with rescue fund, may turn to IMF
1 of 3. Melted euro coins are seen in this photo illustration taken in Bern November 8, 2011.
Credit: Reuters/Michael Buholzer/FilesBy Jan Strupczewski and Valentina ZaBRUSSELS/MILAN | Tue Nov 29, 2011 2:21pm EST
BRUSSELS/MILAN (Reuters) - Euro zone ministers struggled to ramp up the firepower of their rescue fund and raised the possibility of asking the IMF for more help on Tuesday after Italy's borrowing costs hit a euro lifetime high of nearly 8 percent.
Two years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, deposits are draining from south European banks and a looming recession is aggravating the pain, fuelling doubts about the survival of the single currency.
Italy had to offer a record 7.89 percent yield to sell 3-year bonds, a stunning leap from the 4.93 percent it paid in late October, and 7.56 percent for 10-year bonds, compared with 6.06 percent at that time.
The yields were above levels at which Greece, Ireland and Portugal were forced to apply for international bailouts, but European stocks and bonds rallied in apparent relief at the strong demand, with the maximum 7.5 billion euros sold.
"In an ideal world, these yields ... would serve to give the Ecofin/Eurogroup a sense of added urgency, but this is a far from ideal world," said Peter Chatwell, rate strategist at Credit Agricole in London.
The euro had earlier dipped on a report in business daily La Tribune that ratings agency Standard & Poor's would lower its outlook on France's AAA credit rating to negative within 10 days, dealing a potential body blow to the euro zone's ability to rescue heavily indebted countries.
LOOKING TO IMF IF EFSF FALLS SHORT
In Brussels, Eurogroup ministers agreed to release an 8 billion euro aid payment to Greece, the 6th installment of 110 billion euros of loans agreed last year and necessary to help Athens stave off the immediate threat of default.
They are also due to discuss the details of a second, 130 billion euro bailout for Athens and agree on how to bolster their bailout fund to help prevent further contagion in bond markets, although the final amount of leverage looked set to fall short of market expectations.
Ministers said the International Monetary Fund may have to provide more help, possibly bolstered with more European money.
"We will have to look at the IMF which can also make available additional funds for the emergency fund. I think countries in Europe and outside of Europe should be prepared to give more money to the IMF," Dutch Finance Minister Jan Kees de Jager told reporters.
The ministers will agree details of how to leverage the 440 billion euro European Financial Stability Fund (EFSF) so it can help Italy or Spain should they need aid, although worsening market conditions mean it is likely to miss the original target of 1 trillion euros.
The report about France's credit rating came at a delicate time. Paris is the second largest guarantor of the EFSF bailout fund, and one of only six AAA states in the euro zone. S&P declined comment.
Officials said the EFSF leveraging mechanisms could become operational in January, but that may be too late.
"We have talked about leverage though private money, but it would be two or two and a half times an increase so not sufficient and we have to look for other solutions to compliment the EFSF and that in my mind will be the IMF," de Jager said.
With Germany opposed to the idea of the European Central Bank providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of calming markets and the ECB shows no sign yet of responding to widespread calls to massively increase its bond-buying.
One option EU sources said is being is explored is for euro system central banks to lend to the IMF so it can in turn lend to Italy and Spain while applying IMF borrowing conditions.
"We will discuss with the ECB. The ECB is an independent institution, so we will put on the table some proposals and after that it is for the ECB to take the decision," Belgian Finance Minister Didier Reynders told reporters.
The ECB failed for the first time since May to fully offset 203.5 billion euros in euro zone government bond purchases, adding to fears that the debt crisis is ratcheting up stress on the bloc's banking sector.
A Reuters poll of economists showed a 40 percent chance of the ECB stepping up bond-buying with freshly created money within six months, something it has opposed.
The poll forecast a 60 percent chance of an ECB rate cut to 1.0 percent next week and a big majority of economists said they expect the central bank to announce new long-term liquidity tenders to help keep banks afloat at its December 8 meeting.
MONTI TO UNVEIL HIS PLANS
New Italian premier Mario Monti was to outline his fiscal and economic reform plans to the 17 euro zone finance ministers amid reports, officially denied in Rome and Washington, of a possible impending approach to the IMF.
Italy has debts of 1.9 trillion euros - equivalent to 120 percent of national output - and needs to refinance some 340 billion euros of maturing debt next year with big redemptions starting in late January. It has promised to balance its budget in 2013 but Tuesday's auction suggested it will struggle to keep borrowing costs under control without international help.
Italian daily La Repubblica said EU Economic and Monetary Affairs Commissioner Olli Rehn would tell euro zone ministers that Italy needs to introduce extra fiscal measures worth 11 billion euros immediately to meet its target.
Most analysts say more profound measures are now needed, most involving more action from the ECB and an agreement eventually to issue common euro zone bonds, something Germany has opposed.
Berlin has pinned its efforts on a drive for closer fiscal integration among euro zone members.
German Chancellor Angela Merkel will not make a deal at a December 9 European Union summit to stop resisting joint issuance of euro zone bonds in exchange for progress on strengthening fiscal rules, German MPs quoted her as saying.
She told a closed-doors meeting Europe was "a long way from euro bonds", suggesting they may not be ruled out forever.
For now, Germany and France are pressing for coercive powers to reject euro zone members' budgets that breach EU rules, alarming some smaller nations who fear the plans by-pass mechanisms for ensuring equal treatment.
Berlin and Paris aim to outline proposals for a fiscal union before the EU summit that is increasingly seen by investors as possibly the last chance to avert a breakdown of the single currency area.
(Additional reporting by Marius Zaharia in London, Erik Kirschbaum in Berlin, Cecile Lefort in Sydney; Writing by Paul Taylor/Mike Peacock)
Friday, November 25, 2011
Stocks suffer worst week in 2 months on Europe woes
Traders work on the floor of the New York Stock Exchange November 21, 2011.
Credit: Reuters/Brendan McDermidBy Angela MoonNEW YORK | Fri Nov 25, 2011 5:26pm EST
NEW YORK (Reuters) - Stocks posted seven straight sessions of losses on Friday, ending the worst week in two months, as the lack of a credible solution to Europe's debt crisis kept investors away from risky assets.
Wall Street traded higher for most of the abbreviated session on hopes that "Black Friday," the traditional start of the U.S. holiday shopping season, would support major retailers. But gains were quickly offset by headlines out of Europe that further dented market sentiment. With less than 20 minutes before the close, all three stock indexes had turned negative.
Yields on Italy's debt approached recent highs that sparked a sell-off in world markets. Italy paid a record 6.5 percent to borrow money over six months on Friday, and its longer-term funding costs soared far above levels seen as sustainable for public finances.
High debt yields from major economies in Europe such as Spain, France and Germany suggest investing in the region is seen as being more risky.
"Trading remains cautious (since) the poor auction of German bonds mid-week raised concerns the debt crisis is spreading to Europe's core," said WhatsTrading.com options strategist Frederick Ruffy.
Adding to concerns, Standard & Poor's downgraded Belgium's credit rating to double-A from double-A-plus, citing concerns about funding and market pressures.
The Dow Jones industrial average .DJI slipped 25.77 points, or 0.23 percent, to 11,231.78 at the close. The Standard & Poor's 500 Index .SPX declined 3.12 points, or 0.27 percent, to 1,158.67. The Nasdaq Composite Index .IXIC shed 18.57 points, or 0.75 percent, to 2,441.51.
For the week, the S&P 500 fell 4.7 percent, giving back almost two-thirds of its gains in October, the market's best month in 20 years. The Dow was off 4.8 percent for the week and the Nasdaq fell 5.1 percent.
Pressuring the Nasdaq, shares of Netflix (NFLX.O) fell 6.8 percent to $63.86.
Entertainment companies with major consumer product units ranked among the gainers. U.S.-listed shares of Sony Corp (SNE.N) rose 4.2 percent to $16.96. Disney (DIS.N) shares rose 0.3 percent to $33.51.
Trading volume was thin, as expected, with just 3 billion shares changing hands on the New York Stock Exchange, NYSE Amex and Nasdaq as the stock market closed at 1 p.m. The day after Thanksgiving is typically one of the lightest trading volume days of the year. (Reporting by Angela Moon; Editing by Jan Paschal)
Wednesday, November 23, 2011
RPT-UPDATE 2-US bank shares fall on Europe, stress test concerns
* Bank of America shares edge closer to $5 mark
* Six big banks will be tested for Europe exposure
By Rick Rothacker and Joe Rauch
Nov 23 (Reuters) - Bank stocks took a nose-dive on Wednesday on concerns about the European debt crisis and rigorous stress tests unveiled by the Federal Reserve on Tuesday, analysts said.
Bank of America Corp shares fell 4.3 percent to $5.14, near a 52-week low of $5.13 touched in early October. It was the lowest closing price for the bank since March 2009.
Other banks whose shares declined were Citigroup , down 3.8 percent, and Morgan Stanley , down 3.6 percent.
Among regional banks, Regions Financial Corp shares slumped more than 5 percent. The KBW Bank Index closed down 3.4 percent, a steeper decline than the broader market.
The stress tests announced by the Fed are more rigorous than those a year ago, said Jefferson Harralson, an analyst with Keefe, Bruyette & Woods Inc.
"Investors are worried that we won't see a normal resumption of dividends and share buybacks at healthier banks, and for more stressed banks, this could force them to raise capital," Harralson said.
Despite some signs of improvement in the economy and in the health of banks, investors remain worried about factors outside the United States such as the European debt crisis, said Frank Barkocy, director of research at Mendon Capital Advisors.
"There are signs that fundamentals look better, but we have to get these external clouds of concern to dissipate," Barkocy said. "That may take some time."
The cost to insure U.S. bank debt with credit default swaps jumped on Wednesday after a weak German bond sale added to fears that contagion from Europe's debt crisis could spread globally.
Bank of America's CDS costs rose the most, jumping 34 basis points to 471 basis points, or $471,000 per year to insure $10 million in debt, according to data by Markit.
In the stress tests, Bank of America and five other large banks will be measured for their ability to withstand further deterioration in the European debt crisis.
Banks will also be examined for their exposure to investor requests to buy back soured mortgage loans, Harralson noted. "Obviously, Bank of America is the bank that stands out there," he said.
Bank of America Chief Executive Brian Moynihan has taken steps in recent months to settle claims related to mortgage-backed securities, although his most significant initiative, an $8.5 billion agreement with major institutional investors, still needs court approval.
In nearly two years as CEO, Moynihan has worked to shed assets, streamline operations and build capital to cover mortgage losses and meet new international standards. He has also suffered a number of setbacks, including the Fed's rejection of a dividend increase in March and a backlash this fall over a now-canceled debit card fee.
"I think Brian's trying to get things done and is making good progress," Barkocy said. "Sometimes he says things when he's not on firm ground, and it comes back to bite him in the behind, so to speak."
Mike Mayo, an analyst with CLSA, said the bank's management needs to improve confidence in the company after past miscues. The bank should consider shedding more assets to make it easier to manage, he said, without offering any specific examples.
"There should be no sacred cows in the analysis," Mayo said.
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