Wall St drops 2% after Fed in broad decline

NEW YORK (REUTERS) - United States (US) stocks fell more than 2 per cent in a broad selloff on Thursday, extending the previous day's sharp decline as investors continued to fret over the Federal Reserve's plan to begin winding down its stimulus program later this year.

The S&P 500 was on track for its worst daily decline since April 15, and its worst two-day decline in seven months.

All 10 S&P sectors were sharply lower, with more than 90 per cent of stocks traded on the New York Stock Exchange down on the day.

The index fell below its 50-day moving average, a key technical measure of the recent trend in stocks.

It closed below that level on only one day this year, in mid-April, and a break below it could add to selling pressure. It was also on track for its first close under 1,600 since May 2.

The Fed's program has fueled market gains this year, sending indexes repeatedly to all-time highs and contributing to a trend where investors bought on dips, limiting equity declines.

Mr David Joy, chief market strategist at Ameriprise Financial in Boston, said it wasn't clear that trend would persist.

"There's money leaving the market from people who were convinced that the rally has been mostly attributable to the Fed, and the rise on the 10-year yield is a concern since it happened so quickly," he said. "It's too early to say whether this represents a buying opportunity or if the weakness will continue."

Mr Bernanke on Wednesday said the central bank's policy of buying US$85 billion (S$107.1 billion) in bonds per month could start to ebb this year if the economy is strong enough, with it possibly ending next year.

"Remember that tapering would be a vote of confidence in the market, which would be good news," said Mr Joy, who helps oversee US$708 billion in assets. "And for the moment, the Fed is still very accommodative, with things remaining data-dependent. Those are signs that declines of this magnitude may not be justified."

Among the sectors getting hit hard were homebuilders, down 5 per cent on concerns that higher borrowing rates will reduce housing activity. That came even though sales of existing US homes rose in May to a three-and-a-half-year high.

Builder PulteGroup Inc fell 11 percent to $18.41 as the biggest decliner on the S&P 500. Volume was heavy at about 150 per cent of its average volume over the last 30 days.

The Dow Jones industrial average was down 293.06 points, or 1.94 per cent, at 14,819.13. The Standard & Poor's 500 Index was down 35.15 points, or 2.16 per cent, at 1,593.78. The Nasdaq Composite Index was down 71.48 points, or 2.08 per cent, at 3,371.72.

The benchmark 10-year US Treasury note was down 18/32, with the yield at 2.4209 per cent.

The S&P now sits about 4 per cent below its all-time closing high on May 21 of 1,669.16.

Other markets around the world have been hurt much more, with the MSCI's all-country world markets index dropping 3.1 per cent, its largest single-day drop in 19 months. That index has lost 6.8 per cent from the May 21 close.

Each of the 10 S&P industry sectors fell more than 1 per cent with consumer staples leading the losses with a 2 per cent drop. Kroger fell 5.1 per cent after the company said its sales growth missed expectations in the first quarter.

Energy shares were also sharply weaker, dropping alongside a 2.9 per cent slump in the price of crude oil.

Walt Disney shares fell 2.7 per cent to $62.59 after Goldman Sachs removed the stock from its "conviction buy" list.

Shares of Ebix Inc lost 42.8 per cent to $11.27, a day after the insurance software provider said that it and an affiliate of Goldman Sachs would cancel their planned merger after US regulators started an investigation into allegations of misconduct at Ebix.

On the upside, GameStop Corp jumped 6.6 per cent to $41.09 a day after Microsoft Corp said users of its forthcoming Xbox One game console will be able to lend or sell used disc-based games, a plus for GameStop's used games business.