Stocks slide; S&P is negative for year

Associated Press

NEW YORK

Stocks weakened Wednesday, ending a five-day advance in the S&P 500 index, as new signs of strain emerged in the European banking system. The euro fell to its lowest level against the dollar in nearly a year, and Treasurys rallied.

The Dow Jones industrial average lost nearly 140 points. The S&P is now negative for the year again, after barely turning positive Friday.

The European Central Bank said banks had parked $590.72 billion with it overnight, surpassing the record set only Monday. That means European banks were less willing to take the risk of making short-term loans to one another, opting instead to earn low interest rates from the ECB. The disclosure also hurt the euro, which fell to $1.291, its lowest level against the dollar since January.

The worrying news from the ECB overshadowed two successful auctions of Italian government debt. Italy was able to pay much lower borrowing rates than last month. The strong demand from investors raised hopes that Italy would be able to avoid sinking into a financial crisis, as smaller countries such as Greece and Portugal have.

John Merrill, chief investment officer at Tanglewood Wealth Management, said markets would remain vulnerable to flare-ups in Europe’s long-running financial crisis until leaders there come up with more convincing solutions for paying down their enormous debt loads and keeping the 17-nation currency union intact.

European leaders agreed at a summit Dec. 9 to forge closer fiscal ties over the long term, but investors still are worried that Greece might default on its debt or be forced to leave the euro bloc. A Greek exit from the currency union likely would cause huge disruptions for the country’s economy and losses for European banks that hold Greek government debt. Investors fear that could cascade into another global financial panic, as happened in 2008 after the collapse of the U.S. investment bank Lehman Brothers.