Wall Street Retreats on Euro Debt Fears

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Concerns over euro zone sovereign debt, coupled doubts about the pace of global economic recovery, ignited a broad selloff in the equities markets.

Today's Markets

The Dow Jones Industrial Average fell 131 points, or 1.1%, to 12,381, the S&P 500 slid 15.9 points, or 1.2%, to 1,317 and the Nasdaq Composite dropped 44.4 points, or 1.6%, to 2,759. The FOX 50 was lower by 9.3 points to 923.

Energy and materials stocks, such as Schlumberger (NYSE:SLB) and United States Steel (NYSE:X) were sustained the biggest losses on the day. Consumer discretionary issues, like Mattel (NYSE:MAT) and Hasbro (NYSE:HAS), fared the best.

Standard & Poor's cut its outlook on Italy's debt to "negative" from "stable" over the weekend. The ratings company noted weak economic growth prospects and potential political roadblocks to balancing its budget by 2014 as reasons for its decision.  Italy had largely been out of the spotlight in the realm of the European financial crisis.

Indeed, Greece, which has been struggling with a nearly $500 billion public debt burden, has been the subject of more concern in recent weeks. There has been speculation among some market participants about the possibility of a so-called soft restructuring, wherein the embattled nation would push back the maturity of its bonds, but not force bondholders to take a haircut.

Officials over the weekend denied that as a restructuring was an option, but the process through which Greece will work through its debt remains unclear.

The prospect of a European country either restructuring its debt, or worse, defaulting on it, is worrisome to traders across the world is because of the risk of "contagion," said Joe Saluzzi, co-manager of trading at Themis Trading.

Countries and companies across the world loan to one another and hold bonds as assets.  If one bond takes a hit, it can affect the balance sheets of many worldwide entities, causing a cascading effect. It can also adversely affect credit markets as firms grow worried about lending to each other.

"European debt continues to be a significant concern for global investors in currencies, equities, and commodities," wrote Fred Dickson, chief investment strategist at Davidson Companies, in a research note.

Trading was fairly choppy, with the VIX, a gauge of fear in the marketplace, jumping 2%.

Also weighing on the markets was the most recent reading of the HSBC China Manufacturing Purchasing Managers Index, which gauges manufacturing activity, slumped to a 10-month low of 51.1 in May from 51.8 in April.

The euro was off 0.57% against the U.S. dollar and the greenback jumped 0.92% against a basket of world currencies as traders eyed the situation in Europe.

Strength in the dollar put pressure on commodity markets, which generally trade inversely to the greenback.

Light, sweet crude slid $2.40, or 2.4%, to $97.70 a barrel. Wholesale RBOB gasoline was up less than a penny, or 0.08%. to $2.94 a gallon.

Consumer gasoline prices have fallen considerably in the past week.  A gallon of regular gas cost $3.84 on average nationwide, down from $3.96 last week, but up from $2.80 this time last year.

Gold was higher by $6.50, or 0.43%, to $1,515 a troy ounce.  Silver slumped 18 cents, or 0.52%, to $34.90 a troy ounce.

Corporate News

IBM's (NYSE:IBM) value by market capitalization overtook Microsoft's (NASDAQ:MSFT)on the day.

Sony (NYSE:SNE) said it expects to take a $3.2 billion net loss for its fiscal year ended March 31 due to a write off on tax credits.

H&R Block (NYSE:HRB) shares stumbled after the Justice Department filed a lawsuit blocking the tax preparer from buying TaxACT, saying it would cut competition in the do-it-yourself space.

Campbell Soup (NYSE:CPB) zipped past Wall Street's expectations with fiscal third-quarter profits of 57 cents a share, compared with estimates of 52 cents.

Steve Madden (NASDAQ:SHOO), the shoemaker, revealed plans to acquire privately held Topline for $55 million in cash.

Foreign Markets

The English FTSE 100 was down 1.9% to 5,836, the French CAC 40 plummeted 2.1% to 3,907, and the German DAX tumbled 2% to 7,122.

In Asia, the Japanese Nikkei 225 lost 1.5% to 9,461 and the Chinese Hang Seng slumped 2.1% to 22,711.