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The blue chips took their biggest fall of 2012 as traders watched a crucial debt deal in Greece that seemed secure just a day earlier fall victim to political uncertainty and responded to disappointing economic data from the U.S.
Despite the weak performance on the day, Wall Street only posted mild losses for the week. The Dow fell 0.5%, while the broader S&P 500 only ticked lower by 0.2%. The Dow managed to post a major comeback on the day, having fallen 146.9 points at session lows.
Materials and energy shares led the charge lower. Indeed, aluminum giant Alcoa (NYSE:AA) and oil behemoth ExxonMobil (NYSE:XOM) were among the worst-performing blue chips. Industrial and financial shares took a hit too, with big banks like Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) sustaining heavy losses.
Traders were bidding up U.S. Treasury bonds, seen as a safe-haven asset during tumultuous times. The yield on the benchmark 10-year note fell 7.5-basis points to 1.964%. Meanwhile, volatility jolted 11.3% higher, as tracked by the CBOE's VIX.
Greek Deal Hits a Roadblock
Greece's main political parties agreed on Thursday to a package of highly unpopular austerity measures aimed at cutting down the embattled country's public debt level. The deal was a key demand of the European Union and International Monetary Fund, both of which pledged in October to provide Greece with a $172 billion bailout.
Greece needs the first tranche of rescue aid by March 20 to avoid a disorderly default that could hammer European financial markets. However, eurozone finance ministers meeting in Brussels late Thursday said they would not sign off on the bailout until next Wednesday, and only under the conditions that Greece's parliament votes for the austerity package and political leaders of the three main parties agree to it in writing.
"In short: no disbursement without implementation," Luxembourg Prime Minister Jean-Claude Juncker who also heads the so-called Eurogroup said.
The ruling Pasok socialist party controls 153 of 300 seats in Greece's legislative body, meaning it could potentially pass the the vote that is expected to take place this weekend on its own.
However, there is always a risk of defectors that don't follow the party's line, and other, smaller, groups, such as the nationalist Laos party, have voiced strong opposition over the past couple of days. Indeed, the four members of that group that are on Prime Minister Lucas Papademos' cabinet offered their resignation on Friday.
In an attempt to highlight the high stakes for Greece, Papademos said the bailout must go through otherwise a catastrophe could ensure. The premier added anyone who does not believe in this message should not remain within the government.
On top of that, protests against the measures have heated up across the country.
Frustration among market participants across the world who have been watching the situation in Greece unfold for weeks was palpable.
"The market itself is likely to start to lose patience with the ongoing nature of this crisis," analysts at Nomura wrote in a note to clients entitled "Greece. Again." Echoing that sentiment, analysts at Barclays Capital published a note called "The Greek saga close to an end?"
The euro fell 0.9% to $1.3166, while the U.S. dollar climbed 0.67% against a basket of world currencies tracked by the dollar index.
U.S. Economic Data Disappoint
Beyond Greece, traders will had two economic reports to parse through.
Consumer sentiment fell more than expected in the beginning of February. The Reuters/University of Michigan gauge fell to 72.5 from 75 the month prior, missing expectations of 74.5. The measure is closely watched by analysts since consumer spending is a vital part of the U.S. economic picture.
The U.S. trade deficit widened to $48.8 billion in December from $47.1 billion the month prior. Economists were expecting a slightly narrower reading of $48 billion. The increase came as a result of imports that jumped 1.3%, while exports only nudged higher by 0.7%.
Commodities were in the red as equities fell and the dollar rose. The benchmark crude oil contract traded in New York fell $1.17, or 1.2%, to $98.67 a barrel. Wholesale RBOB gasoline dipped 1.3% to $2.975 a gallon.
In metals, gold slid $15.90, or 0.91%, to $1,725 a troy ounce.
European blue chips slid 1.7%, the English FTSE 100 dipped 0.73% to 5,895 and the German DAX sold off by 1.4% to 6,631.
In Asia, the Japanese Nikkei 225 slumped 0.61% to 8,947 and the Chinese Hang Seng skidded 1.7% to 6,675.