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Europe weighs heavily on US stock market
US stocks dip, a day after big gains, as news from across the ocean unnerves investors
By The Associated Press

NEW YORK (AP) ' It hardly needed it, but the U.S. stock market on Wednesday got another sharp reminder of how its fortunes are inexorably tied to the European economy.

All three major U.S. stock indexes sank after a dismal report about bad loans on the books of Spanish banks. The day before, U.S. stocks soared after Spain held a successful auction of 2-year bonds.

News from Europe has whipsawed the market for more than two weeks. Investors have had inconsistent responses, sometimes seizing on seemingly incremental events and at other times ignoring what seem like significant developments. In the 11 trading days of the second quarter so far, the Dow has fallen by triple digits four times, notching four of the five worst days of the year. It has risen by triple digits twice, its second- and third-best days of the year. The capriciousness follows a first quarter of mostly steady gains.

The market "is really difficult to classify" at the moment, said Mike Schenk, senior economist at the Credit Union National Association, a trade group. "On one hand you hear about 'best day since whatever,' on the other hand you have days and weeks that don't look good at all."

The Dow Jones industrial average fell as much as 86 points in the opening minutes of trading on Wednesday, a sharp U-turn from Tuesday's gain of 194 points. It was down 50 points to 13,066 shortly after noon. IBM and Intel fell the most in the Dow after reporting flat revenue late Tuesday.

The Standard & Poor's 500 fell four points to 1,387 and the Nasdaq composite index fell 11 points to 3,032.

The European debt crisis isn't exactly new ' it's been raging for months. But Wednesday brought fresh reminders that the situation is still unpredictable.

"We don't have clarity there, we don't know what's going to happen, and we don't know if things don't go our way what the ramifications will be," Schenk said. "You and I and the rest of the investment world will continue to worry about uncertainty and volatility for a good while."

The International Monetary Fund issued an unsettling report on the state of the European economy, saying that banks could cut back on lending to preserve capital. A Dutch bank refused to give a break to Greece's Hellenic Railway Organization and Athens' metro on money they owe, underscoring how difficult it will be for indebted countries to hammer out rescue agreements when there are so many competing interests to please. And a leader of the European Union slammed the 27 member states, scolding them for administrative barriers that keep them from sharing workers and resources and thus dragging down chances of a recovery.

Excluding Greece, major European markets fell. That was a reversal from the previous day, when Spain's 2-year bond auction sent European stocks storming to their best day in four months.

England's central bank hinted that it doesn't plan to extend its bond-buying program, which essentially pumps money into the economy and is meant to lift stock prices. Similar revelations from the Federal Reserve have hurt the U.S. market.

In Germany, one of the stalwarts of the troubled Eurozone, there was strong interest in a sale of 2-year government bonds. Though that could be construed as good news for Germany, it's also a sign that investors are nervous about the region's economy. People tend to plow their money into safe-haven bonds when they don't have much confidence in stocks.

Spain reported that the proportion of bad loans at its banks has risen to an 18-year high, and its benchmark stock index fell 4 percent. For all the headlines that the Greek crisis generated, Spain is potentially a much bigger problem. Greece makes up about 2 percent of the gross domestic product of the 17 countries that use the euro. Spain makes up 11 percent.

Investors will be closely watching Spain's sale of 10-year bonds Thursday, and those results could drive the market for the rest of the week. The return that the country has to pay on those bonds climbed above 6 percent on Monday, alarmingly close to the 7 percent mark that often signals that a country can no longer afford to borrow money. But that yield fell to 5.81 percent Wednesday, alleviating some of the immediate panic.

Politics also make the Europe situation murky. In Greece and France, upcoming elections threaten to unravel the fragile peace that has been reached between the weak and strong countries in Europe. New leaders could unwind hard-fought deals that require Greece and others to cut spending to get bailout loans.

Among other stocks making big moves:

'U.S.-listed shares of YPF, the energy company seized by the Argentine government, resumed trading shortly before noon and plunged 27 percent.

' Halliburton, the oil services company, rose more than 4 percent after posting a 23 percent jump in first-quarter profits.

' Yahoo rose nearly 3 percent after reporting late Tuesday that it had notched a year-over-year increase in quarterly revenue for the first time since 2008.

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