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Bin Laden rally gives way to long-term doubts

posted 2 May 2011, 14:34 by Sam Mbale   [ updated 2 May 2011, 14:36 ]

Wall Street's initial rise on al Qaeda leader Osama bin Laden's death fades at the close of the day on renewed doubts about the health of the U.S. economy.

NEW YORK CITY, NEW YORK, UNITED STATES (MAY 02, 2011) NYSE - U.S. stocks slipped on Monday (May 2), as an early bounce on Osama bin Laden's death gave way to questions around the longevity of the market's recent rally.

The impact of bin Laden's death by U.S. forces on financial markets prompted a quick flurry of buying, which was viewed as an emotional response.

The Dow swung 92 points from its high of the day to its low.

"The market is kind of like a living mechanism. And it basically has a lot of things to deal with and to focus on. And at the end of the day in its purest sense the market is all about corporate earnings, and then to a certain degree the economy and to a certain degree psychological aspects," said Ted Weisberg, president of Seaport Securities in New York.

Energy and materials were the weakest performers. Investors pulled back from shares that have outperformed lately following declines in commodities. The S&P energy index was down 1.3 percent.

U.S. crude prices ended lower but were off the sharp declines that immediately followed word of the al Qaeda leader's killing, and silver dipped after a recent rally.

Monday's fall followed the Dow's and Nasdaq's posting their best monthly gains since December, and analysts forecast little resistance for the S&P 500 until 1,400.

Stocks also were helped by merger and acquisition announcements, which often reflect optimism about the longer-term outlook. The S&P 500 is up 30 percent since the start of September, roughly when the current rally began.

The Dow Jones industrial average was down 3.18 points, or 0.02 percent, at 12,807.36. The Standard & Poor's 500 Index was down 2.39 points, or 0.18 percent, at

1,361.22. The Nasdaq Composite Index was down 9.46 points, or 0.33 percent, at 2,864.08.

The CBOE Volatility Index, Wall Street's fear gauge, rose 8.8 percent. The VIX index, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500.

Outside the New York Stock Exchange New Yorkers reacted to the news of bin Laden's death. The mood was positive in general.

"Elation, better prospects for the future, better prospects for the economy," answered Bruce McCormick when asked what he felt when he first heard the news.

''Long time coming you know. The guy perpetrated a few crimes against the country against humanity so you know he should pay his dues," said AJ Channel.

Among the deal news, Israel-based Teva Pharmaceuticals Industries Ltd will buy Cephalon Inc for $6.8 billion (USD), and Arch Coal Inc will acquire International Coal Group Inc for $3.4 billion.

U.S.-listed shares of Teva rose 3.4 percent to $47.27, while Cephalon gained 4 percent to $80.11.

In other deal news, Nasdaq OMX Group and IntercontinentalExchange Inc took their $11 billion takeover bid for NYSE Euronext directly to the Big Board's shareholders with a tender offer. NYSE shares were up 0.8 percent at $40.40, while Nasdaq shares were up 0.07 percent at $27.14.

About 7.35 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below last year's estimated

daily average of 8.47 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of 3 to 2, while on the Nasdaq, about 9 stocks declined for every 4 that rose.