New York - US stocks fell on Monday after a plan to tax bank accounts in Cyprus to help pay for the country's bailout stoked worries that it could threaten the stability of financial institutions in the euro zone.
The move pushed the S&P 500 farther from its 2007 record closing high of 1,565.15 after the index came within striking distance of the level last week.
Financial stocks led the day's decline, with the S&P 500 financial index down 1 percent, following a steep slide in European bank shares. JPMorgan Chase fell 1 percent to $49.51.
Cypriot ministers were trying to revise a plan to seize money from bank deposits before a parliamentary vote on Tuesday that will secure the island's financial rescue or could lead to its default.
European officials have said the measure is a one-off for a country that accounts for just 0.2 percent of European output. The fear is that savers in larger European countries will become nervous and start withdrawing funds, although there was no immediate sign of that on Monday.
“There are worries about whether there will be any spillover from the Cyprus situation,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $45 billion.
“Will authorities be able to convince markets that this proposal is only for this unique situation, for such a small country where the banking system is more of a tax shelter? If they can't, that might cause new concerns about Europe's banking system.”
The Dow Jones industrial average slipped 62.05 points, or 0.43 percent, to 14,452.06 at the close. The Standard & Poor's 500 Index shed 8.60 points, or 0.55 percent, to 1,552.10. The Nasdaq Composite Index dropped 11.48 points, or 0.35 percent, to close at 3,237.59.
Earlier in the day, the Dow had lost more than 100 points to tumble to an intraday low of 14,404.21. The Dow, which broke through its 2007 record highs on March 5, is still up about 10.3 percent for the year.
The S&P 500 is up 8.8 percent for the year. The benchmark index is on track to post its best quarter in a year.
“Given what went on in the rest of the globe, it's hung in there,” said Uri Landesman, president of Platinum Partners, an alternative investment fund in New York, in reference to the S&P 500's performance.
“The bulls are definitely still in control of this market, and because of that, it's possible by the end of the month, we set an all-time high on the S&P,” Landesman said.
The CBOE Volatility Index, or VIX, Wall Street's favourite barometer of fear, shot up 18.2 percent to 13.36. Last week, the VIX hit a six-year low.
Among decliners, Schlumberger shares fell 3.9 percent to $76.34 after the world's largest oilfield services company said fewer rigs than predicted were going back to work in its North American operations.
Shares of Dow component Boeing Co fell 1.4 percent to $85.18. Boeing is putting the 787 Dreamliner through tough tests that it had helped develop, but never used on the jet.
Shares of Charter Communications Inc surged 8.8 percent to $98.04 after the Wall Street Journal said Liberty Media Corp is close to buying a 25 percent stake in the cable operator for about $2.5 billion.
Liberty shares rose 0.3 percent to $110.66.
After the bell, shares of Electronic Arts climbed 2.6 percent to $19.20 after the video game company said its chief executive has resigned. The shares closed at $18.71.
Volume was roughly 5.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.
Decliners outpaced advancers on the NYSE by a ratio of slightly more than 3 to 2, and on the Nasdaq, by about 2 to 1. - Reuters