US stocks recover most of earlier losses; Portugal bank worries rattle world markets


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FILE - In this May 11, 2007, file photo, a Wall Street sign is mounted near the flag-draped facade of the New York Stock Exchange. Corporate earnings season is off to a positive start, helping lift the stock market Wednesday, July 9, 2014, after two days of declines. (AP Photo/Richard Drew, File)


NEW YORK — After spending most of Thursday morning sharply lower, stocks had recovered most their losses heading into late afternoon.

Worries about the soundness of a European bank scared U.S. investors at the start of trading, prompting them to sell off stocks and snap up less risky assets like gold and governments bonds.

KEEPING SCORE: The Dow Jones industrial average was down 44 points, or 0.3 percent, to 16,940 at 1:35 p.m. Eastern. The blue-chip index had fallen as much as 180 points in the first half hour of trading on news out of Europe about accounting irregularities at a company connected to a major Portuguese bank.

The Standard & Poor's 500 index fell five points, or 0.2 percent, to 1,968 and the Nasdaq composite fell 10 points, or 0.2 percent, to 4,408. Six out of the 10 industry groups in the S&P 500 index fell, with telecoms and utilities posting the strongest gains. Those industries are where investors go when they want the safety of steady dividend income and more stable stock prices.

PORTUGAL WORRIES: Worries emerged overnight about the financial stability of a Portuguese bank. Espirito Santo Financial Group was forced to suspend trading in its shares Thursday due to accounting irregularities at Espirito Santo International, its largest shareholder. Espirito Santo Financial Group is, in turn, the largest shareholder in Banco Espirito Santo, Portugal's largest bank. The bank's share price fell sharply and is an unwelcome relapse for investors. Portugal just concluded its three-year international bailout program in May.

Portugal needed a 78 billion euro rescue in 2011, one of several nations that required a bailout during the eurozone's debt crisis. The debt crisis in Europe was largely responsible for the U.S. stock market's last correction, a situation when a market falls 10 percent or more. At that time, investors worried the crisis could spread to the U.S. economy, which was starting to recover from its own financial crisis.

"Today's news did reignite some of those contagion fears," said Ryan Larson, head of equity trading for RBC Global Asset Management.

PRICED FOR PERFECTION: The Dow closed above 17,000 for the first time just a week ago. With stocks trading near those all-time highs, investors argue that even a small hiccup in the global economy could upset the market.

"When you're priced to perfection, anything less than perfection is going to disappoint," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

EUROPE: Major stock indexes tumbled in Germany and France. The DAX in Frankfurt fell 1.5 percent and the CAC-40 in Paris slumped 1.3 percent. Spain's IBEX lost 2 percent and the Euro Stoxx 50 index, the European equivalent of the Dow, dropped 1.6 percent.

FLIGHT TO SAFETY: Investors retreated into their traditional havens in times of market turmoil: U.S. government bonds and gold. The yield on the U.S. 10-year note dropped to 2.53 percent from 2.55 percent late Wednesday. Gold rose $14, or 1.1 percent, to $1,338.30 an ounce.

JOBS: In a bit of good news in the U.S., applications for unemployment benefits sank last week. The Labor Department said weekly applications for unemployment benefits dropped to 304,000. The four-week average, a less volatile measure, dipped 3,500 to 311,500, the second-lowest reading since August 2007.

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