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Stocks Close Modestly Lower But Well Off Worst Levels - U.S. Commentary


After moving sharply lower in morning trading on Thursday, stocks staged a notable recovery attempt over the course of the afternoon. Buying interest remained somewhat subdued, however, and the major averages still ended the day in the red.

The major averages posted modest losses on the day, well off their worst levels of the session. The Dow dipped 42.47 points or 0.3 percent to 13,944.05, the Nasdaq edged down 3.35 points or 0.1 percent to 3,165.13 and the S&P 500 slipped 2.73 points or 0.2 percent to 1,509.39.

The early weakness on Wall Street was partly due to uncertainty about the financial situation in Europe following comments by European Central Bank President Mario Draghi.

While Draghi said European economic activity should gradually recover later in 2013, he warned that the risks surrounding the economic outlook for the euro area continue to be on the downside.

Draghi's remarks came after the ECB left interest rates unchanged despite concerns about the recent appreciation in the value of the euro.

Selling pressure was also generated by worries about whether lawmakers in Washington will be unable to reach an agreement to avoid the automatic spending cuts due to go into effect at the end of the month.

President Barack Obama has called on Congress to pass a smaller budget package in order to temporarily delay the automatic cuts for a few months, although Republicans have expressed opposition to the idea.

Nonetheless, lingering optimism about the outlook for stocks helped to limit the downside for the markets, and some traders used the pullback as an opportunity to pick up stocks at reduced levels.

Traders were also presented with a mixed batch of U.S. economic data regarding weekly jobless claims and fourth quarter productivity.

The Labor Department released a report before the start of trading showing that first-time claims for U.S. unemployment benefits saw a modest decrease in the week ended February 2nd, although claims remain well above the five-year low set last month.

The report showed that initial jobless claims dipped to 366,000, a decrease of 5,000 from the previous week's revised figure of 371,000.

However, the Labor Department also released a separate report showing a bigger than expected drop in labor productivity in the fourth quarter, with a notable increase in hours worked more than offsetting a modest increase in output.

Among individual stocks, Apple (AAPL) showed a strong move to the upside late in the trading day after the iPad and iPhone maker releasing a statement noting that its management and Board of Directors have been in active discussions about returning additional cash to shareholders.

Earlier in the day, David Einhorn's Greenlight Capital urged fellow Apple shareholders to oppose the company's attempt to amend its corporate charter, arguing that the amendment would limit the board's flexibility to distribute preferred stock as a means of unlocking shareholder value.

Sector News

Despite the recovery attempt by the broader markets, significant weakness remained visible among housing stocks. Reflecting the weakness in the housing sector, the Philadelphia Housing Sector Index fell by 1.4 percent.

Pharmaceutical stocks also came under pressure on the day, with Sanofi (SNY) leading the sector lower after reporting a sharp decline in its fourth quarter profits. Sanofi dropped by 4.3 percent, contributing to a 1 percent loss by the NYSE Arca Pharmaceutical Index.

Steel and biotechnology stocks also saw notable weakness, while some strength emerged among defense stocks. The Philadelphia Defense Sector Index advanced by 1.1 percent due in part to a standout gain by FLIR Systems (FLIR), which jumped 9.9 percent on upbeat earnings news.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan's Nikkei 225 Index fell by 0.9 percent, while Hong Kong's Hang Seng Index ended the day down by 0.3 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the German DAX Index inched up by 0.1 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index dropped by 1.1 percent and 1.2 percent, respectively.

In the bond market, treasuries moved to the upside over the course of the session, climbing further off their recent lows. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 1.7 basis points to 1.951 percent.

Looking Ahead

Economic data may attract some attention on Friday, with traders likely to keep an eye on reports on the U.S. trade balance and wholesale inventories.

On the earnings front, Activision Blizzard (ATVI), Hasbro (HAS), LinkedIn (LNKD), and Microchip Technology (MCHP) are among the companies releasing their quarterly results after the close of today's trading.

by RTTNews Staff Writer

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