By Rita Nazareth May 25 (Bloomberg) — U.S. stocks fell, sending the Standard & Poor’s 500 Index to its lowest level since November, as bank borrowing costs rose and a report said North Korean leader Kim Jong Il ordered his military to prepare for combat. Citigroup Inc. and JPMorgan Chase & Co. fell at least 2.3 percent as the rate known as Libor that banks say they pay for three-month loans in dollars increased to 0.536 percent, the highest since July 7 and the 11th straight gain. Exxon Mobil Corp. and Alcoa Inc. tumbled as crude oil fell below $68 a barrel and metals plunged. Office Depot Inc. and Abercrombie & Fitch Co. lost more than 2.5 percent after the International Council of Shopping Centers cut its forecast for May sales. The S&P 500 dropped 2.2 percent to 1,049.78 at 10:12 a.m. in New York. It fell to 1,040.78 earlier, the weakest intraday level since Nov. 3. The Dow Jones Industrial Average lost 211.23 points, or 2.1 percent, to 9,855.34. Both pared losses for 5 minutes before resuming their drop after the Conference Board’s consumer confidence measure beat the median economist estimate. “We’re back in uncharted territory,” said Art Hogan , chief market analyst at New York-based Jefferies Group Inc. “Korea is a major distraction at a time of global uncertainty. The market is selling for a bigger reason. There’s concern about the banking industry in Europe. The Libor rate has spiked, which certainly signifies that the credit is slowing in an interbank basis. The market is trying to price in the worst-case scenario right now, of not only lending freezing, but of a major bank becoming insolvent.” Budget Deficits The S&P 500 has lost 13 percent from a 19-month high on April 23 amid concern mounting budget deficits in European countries will derail global growth, erasing a quarter of the index’s 80 percent surge since March 9, 2009. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners and after the International Monetary Fund yesterday urged the nation to take more steps to overhaul its financial institutions. Six stocks in the S&P 500 rallied, led by AutoZone Inc.’s 4.3 percent surge to $192.14. The auto parts retailer with more than 4,300 stores reported fiscal third-quarter profit of $4.12 a share, topping the average analyst estimate in a Bloomberg survey by 15 percent. Goldman Sachs Group Inc. climbed 0.9 percent to $137.86. Equities fell worldwide, driving the MSCI Asia Pacific Index down 3.1 percent, after the North Korea Intellectuals Solidarity group said that the country’s military was put on alert. The U.S. announced plans yesterday to conduct anti- submarine exercises with South Korea following the March 26 torpedoing of a warship. ‘Spooking Markets’ “The troubles that we have are big enough to keep this downtrend going for quite some time,” said Philippe Gijsels , head of research at BNP Paribas Fortis Global Markets in Brussels. “Everybody realizes this is going to put severe stress on economic growth. Tension between South and North Korea is another additional negative that is spooking markets.” Corporate and sovereign credit risk indicators jumped to the highest level in 10 months on concerns that heightened military tension in the Korean peninsula and a slump in confidence in the euro will hurt the global economy. The gap between the cost to buy and sell corporate credit reached the widest in nine months in another sign investors are increasingly wary of all but the safest government bonds amid Europe’s sovereign debt crisis. Mohamed A. El-Erian , co-chief investment officer at Pacific Investment Management Co. , said strains evident in Spain’s banking system are intensifying concern that the Greek debt crisis may spread, PBS reported. “Banks have a way of amplifying shocks in the system,” El-Erian, whose company runs the world’s biggest bond fund, said in an interview with PBS’s Nightly Business Report posted on the U.S. public broadcaster’s website. Banks are “like the oil in your car. They link up so many different parts. The minute you introduce strains in the banking system, there’s always a fear that governments will be behind the curve and that you can get contagion. You can get widespread disruption.” Banks slumped. Citigroup tumbled 3.3 percent to $3.66. JPMorgan lost 2.4 percent to $37.71, while Bank of America Corp. declined 2.6 percent to $15. Energy and raw-materials producers sank on concern that demand will slow. Exxon slumped 2 percent to $58.99, while Alcoa slid 4.4 percent to $10.60. Crude oil declined before a report forecast to show U.S. supplies are growing, while concern Europe’s debt crisis will spread prompted investors to sell riskier assets. Crude oil for July delivery fell as much as 4.4 percent to $67.15 a barrel in New York. Copper, aluminum, nickel and zinc fell in London as investors shied away from risky assets on concern that Europe’s sovereign-debt crisis may spread and China might take more steps to cool its economy. The Dollar Index, which measures the U.S. currency against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, climbed for a second day, rising 1.1 percent. Retailers slumped after the International Council of Shopping Centers forecast that sales will rise 2 percent to 2.5 percent in May, compared with a previous projection of 3.5 percent growth, according to an e-mailed statement. Office Depot fell 2.6 percent to $5.68. Abercrombie & Fitch retreated 2.9 percent to $34.33. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
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U.S. Stocks Drop on Lending Rates as S&P 500 Hits Six-Month Low
