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US markets slip on weak earnings and debt problems in Europe

21 Jul 2012 Evaluate

The US markets slipped on Friday, wiping out July gains for both the Dow Jones Industrial Average and the Nasdaq Composite Index, as investors reacted to earnings-driven developments and due to ongoing debt problems in Europe. Investors had been bracing for a lackluster quarter. In fact, just 45% of companies that have reported have topped revenue expectations. That’s the lowest percentage since the first quarter of 2009. Over the past four years on average, 56% of companies reported actual sales above the mean sales estimate at this same point in earnings season.

In Europe, while euro-zone ministers approved a bailout plan for Spanish banks, Spain’s Valencia regional government stepped up and stated that it would apply for help from the new government fund in an effort to meet its refinancing needs. Spanish prime minister forecasted recession for the second year in a row and Valencia became the first region to seek financial bailout from Madrid. This led government bond yields soaring high and investors turning cautious on renewed fears that the country could be forced to seek a full-fledged sovereign bailout due to its debt burden. Also, Italian Prime Minister Mario Monti blamed rising borrowing costs on the recent unrests in Spain. Meanwhile, the mood in the euro zone took a turn for worst after a coalition ally of German Chancellor Angela Merkel supported the view that Greece may exit the euro.

The Dow Jones industrial average lost by 120.79 points, or 0.93 percent, to 12,822.60. The S&P 500 Index lost 13.85 points, or 1.01 percent, to 1,362.66, while the Nasdaq Composite was down 40.60 points, or 1.37 percent, to 2,925.30.

The Indian ADRs closed mostly in red on Friday, Dr. Reddy’s Lab was down 1.20%, ICICI Bank was down 1.16% and HDFC Bank was down 0.80%. On the flip side, Tata Communication was up 0.41% and MTNL was up 0.02%.

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