U.S. Stocks Post Third Straight Drop

07/09/2012| 07:15am US/Eastern

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--Stocks fall for third-straight day amid concerns about European debt crisis

--Spanish borrowing costs rise on doubts of progress in Europe's debt plans

--Expectations on quarterly earnings muted, despite Alcoa's better-than-expected report

NEW YORK--Nervousness about Europe's debt crisis, an economic slowdown in China and the onset of domestic earnings season pushed U.S. stocks lower for a third-straight day Monday.

The Dow Jones Industrial Average shed 36.18 points, or 0.3%, to 12736.29. The Standard & Poor's 500-stock index gave up 2.22 points, or 0.2%, to 1352.46. Materials and energy shares, seen as tied to global growth, paced declines. The Nasdaq Composite lost 5.56 points, or 0.2%, to 2931.77.

Patriot Coal Corp. (>> Patriot Coal Corporation) tumbled 72% after Bloomberg News reported the company had lined up financing ahead of a possible bankruptcy filing, citing unnamed people familiar with the matter. Alpha Natural Resources Inc. (>> Alpha Natural Resources, Inc.) tumbled 7.5%, leading the S&P 500 lower, amid a selloff in coal shares.

Talks among euro-zone finance ministers on how to bail out the Spanish banking system and create a common regulator for the region's banks failed to impress investors. Yields on Spain's benchmark 10-year bond rose to about 7%, a level that most economists say is unsustainable.

European markets were mostly lower, with the Stoxx Europe 600 slipping 0.4%. Spain's IBEX-35 stock index lost 0.8%.

"The overall point is, there's much more uncertainty about global growth," said John Toohey, a portfolio manager at USAA in San Antonio who helps oversee $50 billion.

"The yield rising in Spain reflects that at the summit, they haven't provided concrete details about how they're going to separate the sovereign-debt risk from the banking risk," Mr. Toohey added. "They haven't provided any concrete details about how they're going to grow."

Adding to concerns, data over the weekend showed that inflation eased in China last month as demand cooled.

Alcoa Inc.'s (>> Alcoa Inc.) second-quarter earnings report, released after the close, marked the unofficial kick-off of the reporting season. The blue-chip aluminum company edged up 0.4% and extended gains in after-hours trading immediately after its report as its core earnings topped analysts' estimates.

Nevertheless investors' expectations for earnings season remained muted. Dozens of companies have warned that profits would be lower than originally expected, in large part because of slowing global demand.

"There's jitteriness about what the second-quarter earnings are going to be," said Diane Jaffee, senior portfolio manager at TCW Group, which manages about $25 billion in equity assets. "It's really this nervousness about how much the European slowdown and China slowdown are going to impact earnings."

Asian markets retreated, led by the 2.4% tumble in China's Shanghai Composite to a six-month low after Premier Wen Jiabao said over the weekend that there was "huge pressure" on the Chinese economy. Japan's Nikkei Stock Average shed 1.4%.

Consumer credit expanded in May at the fastest pace in five months, outpacing economists' expectations, a Federal Reserve report showed. The prior month's reading was revised sharply higher. Expansion in credit could be a positive sign for the economy, showing that Americans are still seeking financing for big-ticket purchases and education loans.

Crude-oil futures rose 1.8% to settle at $85.99, while gold futures added 0.6% to finish at $1,588.60 a troy ounce. The dollar eased against the euro and the yen.

In other corporate news, Amerigroup Corp. (>> AMERIGROUP Corporation) surged 38% after the health insurer said it agreed to be acquired by WellPoint Inc. (>> WellPoint, Inc.) for $4.46 billion in cash. WellPoint shares gained 3.4%, the second-biggest increase among S&P-500 components. The index's health-care sector was one of just two of its 10 groups to rise as Amerigroup rivals such as Centene Corp. (>> Centene Corp) and Molina Healthcare Inc. (>> Molina Healthcare, Inc.) also advanced.

In other deal news, FX Alliance Inc. (>> FX Alliance Inc) leapt 40% after the electronic currency-trading platform entered into a deal to be bought by Thomson Reuters Corp. (TRI, TRI.T) for $616 million.

Facebook Inc. (>> Facebook Inc) rose 1.4% after agreeing to settle patent litigation with Yahoo! Inc. (>> Yahoo! Inc.), drawing an end to a nasty but ultimately short-lived dispute that had roiled Silicon Valley.

Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com

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