U.S. markets dip as Spain bailout euphoria subsides

The $125 billion rescue plan for Spain’s debt-laden banks did not cheer U.S. markets on Monday.

The Dow Jones industrial average dropped 143 points, or 1.1 percent, to close at 12,411.23. Standard & Poor’s 500-stock index was down 1.3 percent. The Nasdaq closed down 49 points, or 1.7 percent.

Both the Dow and the S&P 500 recorded their biggest gains of the year last week, spurred by hopes that the Federal Reserve and the European Central Bank would take action to boost economic growth.

Over the weekend, European leaders approved a bailout package to recapitalize Spain’s struggling banks, making it the fourth and largest euro-zone nation to receive aid.

U.S. markets opened on a positive note following news of the bailout, but stocks fell quickly as investor optimism about the deal faded, analysts said.

Spain’s rescue package was “an overnight fix,” which does not repair the system that caused its debt problems, said James Cox, managing partner at Harris Financial Group in Richmond.

“The headlines of these bailouts are far more positive than the details,” Cox said. “The longer you have to digest the headlines, the less positive they seem.”

Major European indexes slipped into the red Monday. In London, the FTSE 100 index initially soared, with shares up nearly 2 percent in early trading. But the early euphoria soon faded with the index ending the session down 0.05 percent at 5,432.37.

“Spain is most obviously not out of the woods, which is why I think the rally was short-lived,” said Howard Archer, chief European economist at IHS Global Insight in London. He said the banking bailout of up to 100 billion euros ($125 billion) was a “necessary and important step in the right direction,” but the “major concerns over Spain’s underlying economic position” had not gone away.

Archer added that the “markets will be very wary until we know what’s happening with the Greek elections; that’s the massive thing on the horizon.” Greece will hold elections this weekend, and voters could install a new government that is opposed to austerity measures imposed by Europe as a condition for its financial bailout plan.

Elsewhere in Europe, France’s CAC 40 dropped 0.3 percent, while Spain’s IBEX 35 fell 0.5 percent. Germany’s DAX 30 index climbed a modest 0.2 percent.

Italy’s FTSE MIB suffered the steepest losses, ending the session down 2.8 percent as speculation mounted that Italy could be next in line to ask for a bailout.

Staff writer Anthony Faiola contributed to this report from London.

Amrita Jayakumar covers IT and federal government contracting for Capital Business, The Post's local business section.
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