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US STOCKS-Wall St selloff continues on global economy worry

* Shire (Xetra: S7E.DE - news) shares tumble as AbbVie (Xetra: 4AB.DE - news) reconsiders bid

* Retail sales drop more than expected in September

* Producer prices fall for first time in over a year

* Indexes off: Dow 1.2 pct, S&P 1.2 pct, Nasdaq 0.98 pct (Updates to late morning)

By Chuck Mikolajczak

NEW YORK, Oct 15 (Reuters) - U.S. stocks dropped on Wednesday as economic data reinforced worries over the health of the world economy and signs emerged of slowing merger activity.

Each of the major indexes had fallen more than 2 percent shortly after the open, sending the S&P 500 and Nasdaq into negative territory for the year, before paring losses. The Dow industrials fell into the red for 2014 on Friday.

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Concern over plunging oil prices, the potential impact of global economic weakness on U.S. earnings and the spread of Ebola have rattled markets recently. The S&P 500 is on track for its sixth fall in eight sessions and is down nearly 8 percent since its Sept. 18 record closing high.

Worries about a slowing global economy weren't helped by data that showed U.S. retail sales and producer prices fell in September, while manufacturing activity in New York slowed to its weakest pace since April.

"We had Empire State manufacturing coming in much lower than expected, we had retail sales coming in lower than expected, so there were signs, with this recent data, of an economic slowdown," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

"You couple this with fears about the spread of Ebola, with the recent downtrend and what we had today, the mindset has been a flight to safety and cash is certainly a safe place to be in."

Chicago-based AbbVie threw the pace of merger and acquisition activity into doubt. It said it was reconsidering its $55 billion takeover of Shire, weeks after the U.S. government moved to curb deals designed to reduce tax. U.S.-listed shares of Shire tumbled 22.4 percent to $189.76 while AbbVie shares advanced 1.6 percent to $55.

The Dow Jones industrial average fell 195.34 points, or 1.2 percent, to 16,119.85, the S&P 500 lost 21.94 points, or 1.17 percent, to 1,855.76 and the Nasdaq Composite dropped 41.28 points, or 0.98 percent, to 4,185.90.

In earnings news, Bank of America shares were off 3 percent to $16.03 after posting its third-quarter results. The S&P financial sector fell 2.1 percent as the worst performing of the ten major S&P sectors, all of which were in negative territory.

S&P 500 companies are expected to show earnings growth of 6.7 percent in the third quarter, according to Thomson Reuters data, with revenue growth expected at 4 percent.

Later in the session at 2:00 p.m. (1800 GMT) the Federal Reserve's Beige Book on business activity across the nation is expected.

The largest percentage gainer on the S&P 500 was Southwestern Energy (NYSE: SWN - news) , up 4.1 percent, while the largest percentage decliner was KeyCorp (NYSE: KEY - news) , down 6.1 percent.

The largest percentage gainer on the Nasdaq 100 was NXP Semiconductors, up 2.2 percent, while the largest percentage decliner was Liberty Interactive, down 4.1 percent.

Declining issues were outnumbering advancing ones on the NYSE by 2,116 to 896, for a 2.36-to-1 ratio on the downside; on the Nasdaq, 1,578 issues were falling and 971 advancing for a 1.63-to-1 ratio favoring decliners.

The benchmark S&P 500 index was posting 2 new 52-week highs and 68 new lows; the Nasdaq Composite was recording 5 new highs and 206 new lows. (Additional reporting by Yasmeen Abutaleb; Editing by Bernadette Baum and Nick Zieminski)