By Rita Nazareth
April 7 (Bloomberg) -- U.S. stocks fell, dragging the Dow Jones Industrial Average down from an almost three-year high, as another earthquake shook Japan and a dispute over the federal budget threatened to shut down the American government.
General Electric Co., Cisco Systems Inc. and Alcoa Inc. lost at least 1.2 percent to lead declines in the Dow. The iShares MSCI Japan Index Fund, an exchange-traded security tracking the nation?s equities, dropped 0.8 percent after retreating as much as 1.7 percent. Gap Inc. declined 1.4 percent after the largest U.S. apparel chain reported a 10 percent slump
The S&P 500 lost 0.2 percent to 1,332.63 at 3:19 p.m. in New York, after dropping as much as 0.7 percent. The Dow, which climbed yesterday to the highest level since June 2008, slid 28.53 points, or 0.2 percent, to 12,398.22 today.
?It?s body blow after body blow,? said Matt McCormick, a Cincinnati-based money manager at Bahl & Gaynor Inc., which oversees $3.6 billion. ?The market has faced a series of black swans. We don?t know the impacts of the Japan situation. We don?t know what will happen in the Middle East. In addition, people are skittish because of all the budget discussion and concern about the future of monetary and fiscal policies.?
The S&P 500 rose 6.2 percent in 2011 through yesterday as government stimulus measures, corporate takeovers and higher- than-estimated profits boosted investors? optimism. The benchmark gauge fell on April 5 as minutes from the Federal Reserve?s last meeting spurred speculation central bankers may begin removing record stimulus measures enacted to ensure the economy recovered from recession.
7.1-Magnitude Earthquake
Benchmark indexes slumped today as 7.1-magnitude earthquake minutes before midnight spared the stricken Fukushima Dai-Ichi nuclear plant in Japan, although workers struggling to cool radioactive fuel were evacuated, Tokyo Electric Power Co. said based on its initial assessment. The aftershock was the second- strongest since a record 9-magnitude earthquake and tsunami on March 11. No unusual conditions were observed at the plant afterward, the utility, known as Tepco, and Japan?s Nuclear and Industrial Safety Agency said in statements.
Crude rose above $110 a barrel for the first time in 30 months as a fire burned at Libya?s Sarir field, bolstering concern that unrest in North Africa and the Middle East will spread, curbing shipments. NATO said forces loyal to Muammar Qaddafi caused a fire at the field, according to Al Arabiya television. The conflict in Libya is currently in a stalemate, said Army General Carter Ham, the U.S. commander for Africa.
Stopgap Spending Bill
The U.S. House approved a stopgap spending bill to keep the government open through next week, although President Barack Obama said he would veto the measure and a shutdown still looms. The measure, passed 247-181, would cut another $12 billion in spending this year and fund the Pentagon at current levels through Sept. 30. Senate Majority Leader Harry Reid, a Nevada Democrat, called the bill a ?non-starter.?
House Speaker John Boehner said there was no agreement on a budget reached at a White House meeting with President Obama and Senate Majority Leader Reid. ?We?re not there yet,? Boehner, an Ohio Republican, said outside the White House. Reid, a Nevada Democrat, said he was ?disappointed? that negotiations haven?t resolved the issue. He said the leaders will meet again tonight.
A failure by Congress to extend the government?s spending authority, which expires tomorrow, would force the closure of national parks, monuments and museums. Federal agencies -- such as the National Labor Relations Board -- that don?t protect lives, property or national security also would be shuttered.
Higher Rates
Stock-futures fell before the open of exchanges as European Central Bank President Jean-Claude Trichet said today?s interest-rate increase is not necessarily the start of a series. ?We did not decide that it was the first of a series of interest-rate increases,? Trichet said at a press conference in Frankfurt after the ECB raised its benchmark rate to 1.25 percent from a record low of 1 percent.
The S&P 500 has closed every session this month less than 1 percent below its 2011 high of 1,343.01 set on Feb. 18, causing investors to question whether the index will set a new high or head lower in a so-called double top.
?The big question with the indexes is, will this be a double top or not?? said Kurt Kinker, chief market analyst at Mirus Futures in Chicago. ?We?re holding these 1330s in the S&Ps. And whether they can break out above the February highs or whether they?ll head south, that?s the question.?
Gap Slumps
Gap slipped 1.4 percent to $22.73. Same-store sales dropped 10 percent, compared with the estimated decline of 7.3 percent. Last month?s earthquake and tsunami in Japan, where the retailer has more than 150 stores, cut into results, Chief Executive Officer Glenn Murphy said in a statement.
KLA-Tencor Corp. had the biggest drop in the S&P 500, falling 4.9 percent to $43.93. Citigroup Inc. advised selling rival semiconductor-equipment maker Lam Research Corp.
Lam Research dropped 4.6 percent to $53.75. The maker of chip-manufacturing equipment may disappoint investors when reporting earnings for the current quarter as demand slows, Citigroup Inc. wrote in a note, in which it added the idea of selling the shares its Top Picks Live! list.
Bed Bath & Beyond Inc. gained 11 percent to $54.60. The home furnishings retailer forecast annual earnings of $3.38 to $3.53 a share. That compares with the average analyst projection of $3.33, Bloomberg data show.
Costco Wholesale Corp. rose 3.7 percent to $77.75. The largest U.S. warehouse-club chain reported total comparable sales rose 13 percent in March, beating the 7.4 percent estimate.
Jobless Claims
Fewer Americans filed first-time claims for unemployment insurance last week. Applications for jobless benefits fell 10,000 in the week ended April 2 to 382,000, the fewest since Feb. 26, Labor Department figures showed. Economists projected claims would be little changed at 385,000, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls and those collecting extended payments decreased.
?There?s a glimmer of hope that the jobs market is getting better,? said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $3 billion in San Antonio. ?There?s no doubt things are getting better from an economic standpoint. The wild card here will be monetary policy.?
--Editors: Nick Baker, Michael Regan
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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