Category: Markets / Finance / January 7, 2013 5:00 PM EST
Wall Street stock prices retreated from five-year highs on Monday (January 07), while the euro rose against the dollar on bets the European Central Bank might refrain from signaling more interest rate cuts on Thursday.
The weakness in the equities market, partly due to caution ahead of companies beginning to report on their fourth-quarter earnings, spurred selling of oil, gold and other risky investments. This stoked some safety bids for U.S. and German government debt.
Investors turned their focus to corporate profits in the last three months of 2012, when growth in American holiday spending and corporate investments was tepid as shoppers and companies dialed back on worries about the United States going over the "fiscal cliff" - a series of automatic tax hikes and government spending cuts that could have kicked in if a budget deal in Washington were not reached last week.
Earnings are expected to be only slightly better than the third-quarter's lackluster results and analysts' current estimates are down sharply from what they were in October.
Uneasiness about corporate profits emerged even after data on Friday showed U.S. employers kept up a modest pace of hiring in December and the vast services sector expanded.
Hopes for global economic recovery got a boost after the Basel Committee of banking supervisors agreed to give banks four more years and greater flexibility than previously envisaged to build protective cash buffers. That means they can use more of their reserves to lend and help economies grow.
In the United States, news of a longer timetable for banks to manage their capital was overshadowed by 10 banks agreeing to pay $8.5 billion (USD) to settle a federal review of their questionable foreclosure practices.
The Dow Jones industrial average closed down 50.92 points, or 0.38 percent, at 13,384.29. The Standard & Poor's 500 Index finished 4.58 points, or 0.31 percent, lower at 1,461.89. The Nasdaq Composite Index ended down 2.84 points, or 0.09 percent, at 3,098.81.
Among the day's biggest movers were Nationstar Mortgage Holdings, whose shares jumped 16.9 percent to $38.83 after Bank of America entered a deal to sell the servicing rights on over $300 billion of home loans to Nationstar and Walter Investment Management.
Walter stock climbed 8.2 percent at $47.68.
After touching a 22-month peak last week, the FTSE Eurofirst index of top European shares ended 0.49 percent lower at 1,161.57, although the region's bank sector as measured by the STOXX euro zone bank index bucked the market trend, gaining 1.5 percent on the Basel news on bank capital.
MSCI's broad world equity index was down 0.2 percent at 347.01, but was still not far below an 18-month peak scaled when investors returned to the market after the immediate U.S. fiscal crisis was averted last week.