US stocks fell in a choppy session on Tuesday as news late in the session that Portugal's debt could be downgraded re-ignited selling in a high-volume flurry that may bode ill when markets reopen. Earlier, the S&P 500 had erased much of a 1 percent loss after improved consumer confidence and manufacturing data were the latest signs the US economy was on the mend.
Adding to investors' near-constant torment from Europe, Standard & Poor's put Portugal's credit rating on review for a possible downgrade just minutes before US markets closed, saying the country may have to turn to the EU and IMF for funding. If European markets take that news badly when they open on Wednesday, selling may spill over into US trading.
"If you start to see them sell off substantially, it usually tends to have a rollover effect," said Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, New Jersey. Financial and technology stocks ranked among the biggest drags. Bank of America fell 3.2 percent to $10.95, while Micron Tech lost 4 percent to $7.27.
With Europe engaged in ad hoc crisis management for much of the year, investors are torn between fears the region's troubles will spiral out of control and signs of US economic strength and equity valuations that are below long-term averages. Consumer discretionary stocks were among the better performers after the Conference Board reported US consumer confidence rose to its highest level in five months. Retailer Gap Inc rose 3.1 percent to $21.36, while Tiffany & Co added 2.4 percent to $62.10.
Improved consumer sentiment as well as stronger US Midwest business activity are the latest in a series of reports that have made investors more optimistic before Friday's November unemployment report and as the holiday spending season gets under way. The Dow Jones industrial average dropped 46.47 points, or 0.42 percent, to 11,006.02. The Standard & Poor's 500 Index fell 7.21 points, or 0.61 percent, to 1,180.55. The Nasdaq Composite Index lost 26.99 points, or 1.07 percent, to 2,498.23.
Global investors increased their exposure to equities in November despite weaknesses on many bourses, while US and British fund managers stepped away from crisis-hit eurozone bonds, a Reuters asset allocation poll found. Reflecting investors' fear over short-term uncertainty, the CBOE Volatility Index, or VIX, shot up 9.3 percent to 23.54.
Amid the economic reports, the S&P/Case-Shiller home prices data was a fly in the ointment. Monthly prices fell more than expected in September and prices from a year earlier rose more slowly than forecast. But in a sign that investors may have grown too bearish on the sector, the Dow Jones US home construction index edged up 0.9 percent after closing Monday at its lowest since July 2009. The index is down 13.2 percent this year.
US home improvement chain Lowe's Cos reaffirmed its sales and profit outlook for its current fiscal 2010, sending its shares up 1.5 percent to close at $22.70. In mid-November, Lowe's CEO said he believes most of the decline in home prices is over. Google Inc weighed on the Nasdaq index following media reports that it is close to a deal to buy local advertising website Groupon Inc in what could be the Internet company's biggest acquisition to date. Google shares fell 4.5 percent to $555.71.
Declining stocks beat advancers by a ratio of almost 2 to 1 on the New York Stock Exchange, and by just over 2 to 1 on the Nasdaq. About 9.08 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above the year-to-date average of about 8.48 billion.
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