U.S. Stocks Fall on China Manufacturing, Fed Speculation

U.S. stocks fell, sending the Standard & Poor's 500 Index lower for a second day, as data showed Chinese manufacturing unexpectedly shrank and speculation mounted the Federal Reserve will cut bond purchases.

Morgan Stanley and Bank of America Corp. dropped at least 1.3 percent. Ford Motor Co. (F) retreated 1.4 percent after saying it will stop making cars in Australia in October 2016. Hewlett-Packard Co. surged 13 percent after the computer maker's forecast for fiscal third-quarter profit exceeded estimates.

The S&P 500 (SPX) slid 0.7 percent to 1,644.25 at 10:16 a.m. in New York, after tumbling as much as 1.2 percent earlier in the trading day. The Dow Jones Industrial Average declined 61.62 points, or 0.4 percent, to 15,245.55. Trading in S&P 500 stocks was 33 percent above the 30-day average during this time of day.

"The fundamentals haven't changed in the last 24 hours, but some of the sentiment and emotion in the market have been gotten a little bit negative," Cam Albright, director of asset allocation at Baltimore-based Wilmington Trust Investment Advisors, which oversees about $20 billion, said by telephone. "We've had a combination of things hit the market. The comments from Bernanke left the market a little confused as to what to expect. The results out of Asia were ugly."

In China, the preliminary reading for a Purchasing Managers' Index (EC11FLAS) of manufacturing was 49.6 in May, according to data released by HSBC Holdings Plc and Markit Economics. That missed the average forecast of economists calling for a reading of 50.4 and compared with a final 50.4 for April. Results below 50 signal contraction.

Topix Sinks

Japan's Topix (TPX) index plunged 6.9 percent, the most since the aftermath of the March 2011 tsunami and nuclear disaster. The MSCI Asia Pacific Index dropped 3.6 percent.

The Stoxx Europe 600 Index fell 2.3 percent as Fed Chairman Ben S. Bernanke said after European markets closed yesterday that the! flow of asset purchases could be reduced "in the next few meetings" if economic conditions improve. Fed Bank of St. Louis President James Bullard said in London today he's concerned about inflation and that he'd like to continue the current pace of bond purchases.

Jobless Claims

Jobless claims decreased by 23,000 to 340,000 in the week ended May 18, Labor Department figures showed today in Washington. The median forecast of 50 economists surveyed by Bloomberg called for a drop to 345,000. Bernanke said yesterday the job market is still weak, one reason why policy makers will continue buying bonds in a bid to keep interest rates low and spur growth.

Equities pared declines after separate data showed builders sold more U.S. new homes than projected in April. Sales climbed 2.3 percent to a three-month high of 454,000 homes at an annualized pace from a 444,000 rate in March, the Commerce Department said. The median estimate of 76 economists surveyed by Bloomberg called for a gain to 425,000.

A selloff in equities has created an opportunity for investors to buy assets that will rebound and reach new highs, according to David Kotok, chief investment officer at Cumberland Advisors Inc.

"This is an entry opportunity," Kotok said in a television interview on "Bloomberg Surveillance" from New York. "The entry point is going to come very robustly and then this market goes much higher. All the central banks are still committed to quantitative easing."

Bull Market

The U.S. bull market has entered its fifth year, adding about $11.5 trillion in market value, according to data compiled by Bloomberg. The S&P 500 has surged 143 percent from a 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Fed. The gauge closed at a record on May 21.

Morgan Stanley, the largest U.S. financial brokerage, slid 1.7 percent to $24.27. Bank of America, the nation's second-biggest lender by assets, de! clined 1.! 3 percent to $13.14.

Ford dropped 1.4 percent to $14.76 after saying it will stop making cars in Australia in October 2016. The closure will cut 1,200 jobs, according to a statement. Ford began assembling Model Ts in Australia in 1925.

Hewlett-Packard jumped 13 percent to $23.96 as the largest maker of personal computers said earnings excluding some items will be in the range of 84 cents to 87 cents a share in the three months through July. Analysts on average project 83 cents.

Dollar Tree Inc. added 4.3 percent to $50.46. The discount-store chain lifted its forecast for annual earnings to as much as much $2.77 a share, compared with an earlier prediction of no more than $2.74. First-quarter earnings also topped analysts' estimates.

Domino's Pizza Inc. increased 2.4 percent to $57.98. The company will join the S&P MidCap 400 Index after the close on May 30, replacing Plains Exploration & Production Co., according to a statement by S&P Dow Jones Indices yesterday.