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Stocks Posting Steep Losses In Mid-Day Trading - U.S. Commentary

Stocks have moved sharply lower over the course of the trading day on Wednesday, pulling back further off their recent highs. Continued disappointment with the minutes of the latest Federal Reserve meeting is contributing to the weakness in the markets.

The major averages have moved roughly sideways in recent trading, lingering near their worst levels of the day. The Dow is down 145.31 points or 1.1 percent at 13,054.24, the Nasdaq is down 54.12 points or 1.7 percent at 3,059.45 and the S&P 500 is down 15.97 points or 1.1 percent at 1,397.41.

The sell-off on Wall Street comes as traders continue to react to the minutes of the latest Federal Reserve meeting, which were interpreted as a sign that the central bank is not likely to engage in any further quantitative easing.

The latest minutes said only "a couple of members" indicated that additional stimulus could become necessary, while the minutes of the January meeting said "a few members" believed that conditions could warrant additional securities purchases.

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted that some traders were clinging to the possibility that a third round of quantitative easing was coming due in part to the dovish tone of Fed chairman Ben Bernanke's recent speech on the labor market.

A disappointing Spanish bond auction and a weaker than expected reading on U.S. service sector activity have also generated some selling pressure.

The Institute for Supply Management released a report earlier in the day showing that its index of activity in the service sector fell to 56.0 in March from 57.3 in February.

While a reading above 50 still indicates growth in the service sector, economists had been expecting the index to show a more modest decrease to a reading of 57.0.

The negative news has overshadowed a report from payroll processor Automatic Data Processing (ADP) showing continued job growth in the U.S. private sector.

ADP said employment increased by 209,000 jobs in March following an upwardly revised increase of 230,000 jobs in February. Economists had expected an increase of about 208,000 jobs compared to the addition of 216,000 jobs originally reported for the previous month.

Among individual stocks, Yahoo (YHOO) is trading moderately lower after the internet giant said it will lay off about 2,000 employees, or 14 percent of its global workforce, as it revamps itself into a slimmer company.

Agricultural products provider Monsanto (MON) is also posting a modest loss despite reporting better than expected second quarter results and raising its full-year earnings outlook.

Sector News

While most of the major sectors have moved to the downside, gold stocks are posting particularly steep losses in mid-day trading. Reflecting the weakness in the gold sector, the NYSE Arca Gold Bugs Index has tumbled by 4.4 percent to its lowest intraday level in well over a year.

The losses by gold stocks come amid a sharp drop by the price of the precious metal, with gold for June delivery plummeting $52.20 to $1,619.80 an ounce.

Considerable weakness is also visible among semiconductor stocks, with the Philadelphia Semiconductor Index down by 2.7 percent. SanDisk (SNDK) is leading the sector lower, with the memory chip maker down by 9.5 percent after lowering its first quarter revenue guidance.

Networking stocks have also come under significant selling pressure, dragging the NYSE Arca Networking Index down by 2.5 percent. Alcatel-Lucent (ALU) is turning in one of the sector's worst performances, falling by 5.6 percent.

Financial, steel, oil service, and software stocks are also posting notable losses on the day, reflecting the broad based weakness in the markets.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region came under pressure on Wednesday. Japan's Nikkei 225 Index tumbled by 2.2 percent, while Australia's All Ordinaries Index edged down by 0.1 percent. The markets in Hong Kong and mainland China were closed for public holidays.

The major European markets also showed significant moves to the downside on the day. While the U.K.'s FTSE 100 Index dropped by 2.3 percent, the French CAC 40 Index and the German DAX Index plummeted by 2.7 percent and 2.8 percent, respectively.

In the bond market, treasuries are regaining ground after falling sharply in late-day trading on Tuesday. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 3.4 basis points at 2.25 percent.

by RTT Staff Writer

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