Stocks plunge as rating agencies knock euro deal

Stocks plunged Monday after two big rating agencies criticized a fiscal pact announced last week by European leaders that is aimed at easing the region’s debt crisis.

Fitch Ratings said at midday that the deal to bind Europe’s budgets more closely made little difference. Fitch predicted that the region will face “a significant economic downturn” as it wrestles with its sovereign debt crisis for another year or more.

The Dow Jones industrial average dove 219 points in afternoon trading. Intel Corp. pulled the Dow lower, falling 4.4 percent after the chipmaker said its fourth-quarter revenue will be lower than expected because of supply chain problems.

The euro hit a 10-week low against the dollar, plunging nearly 2 cents. Yields on Italian bonds rose as investors fretted about that nation’s debt burden. European stocks closed sharply lower.

Moody’s Investors Service said earlier in the day that it will review the credit ratings of every European Union nation in the first quarter of next year. The statement doused optimism among investors that had lifted stocks and other risky assets late last week.

The summit produced “few new measures” and Europe remains in a “critical and volatile stage,” Moody’s said in a published report. The pact, Moody’s noted, does not address Europe’s immediate problem: the crushing debt loads of some nations and their rising borrowing costs.

The agreement “kicks off a process that has a chance of solving the next crisis, not this one,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. “The problem is the changes they’ve agreed to go toward solving the root of current problems 12 months from now.”

Stocks fell broadly, with declines across all 10 industry groups in the Standard & Poor’s 500 index and 29 of the 30 stocks in the Dow.

The Dow fell 219, or 1.8 percent, to 11,965 at 2:20 p.m. Eastern time. Among its laggards was Intel, which dropped 4.6 percent after it said its fourth-quarter revenue will be less than Wall Street expected because a shortage of hard drives had crimped the supply chain. Intel is considered a bellwether for the computer industry because its chips are used in so many products.

The S&P 500 fell 25 points, or 2 percent, to 1,230. The Nasdaq composite index dropped 47, or 1.8 percent, to 2,600.

Financial stocks showed some of the steepest declines because investors fear big banks might be damaged by the turmoil in the European financial system. Morgan Stanley fell 6 percent, Citigroup Inc. 5.3 percent and Bank of America Corp. 4.2 percent.

The warning from Moody’s helped deflate optimism about last week’s pact, which called for tougher fiscal discipline among European countries and a central authority with the ability to punish those that spend too much.

The yield on the 10-year Treasury note fell to 2.02 percent from 2.07 percent late Friday, indicating stronger demand for low-risk investments. Bond yields fall as demand for them increases.

Fears that Italy or Spain will default reduced demand for their government bonds, driving their yields higher and lifting their borrowing costs near the dangerous levels that forced Greece, Portugal and Ireland to take bailouts. The yield on the 10-year Italian bond rose to 6.53 percent. Greece and Portugal were forced to seek bailouts from their creditors when their bond yields approached 7 percent.

Stocks in Italy led European markets lower. Italy’s FTSE MIB closed down 3.8 percent, Germany’s DAX 3.4 percent and Spain’s IBEX 35 3.1 percent.

Also among the top corporate movers:

— Endo Pharmaceuticals Holdings Inc. jumped 6 percent after federal regulators approved a new form of one of its pain medications, extending its patent rights over the drug.

— Diamond Foods Inc. plunged 21.3 percent after reports of an investigation of its payments to walnut farmers. Lawsuits already have been filed, and more are expected.

— Vulcan Materials Co. shot up 17.4, the most in the S&P 500, after Martin Marietta Materials Inc. made an unsolicited bid to buy the company for $4.74 billion in stock. Martin Marietta rose 1.2 percent. 

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