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U.S. Stocks Fall in Late Trading Amid Ominous Fiscal Signs

12/28/2012 | 04:08pm US/Eastern
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By Jonathan Cheng

U.S. stocks tumbled in late trading Friday as investors warily watched a late-afternoon White House meeting to possibly strike a deal to avert the so-called fiscal cliff.

The Dow Jones Industrial Average declined 127 points, or 1%, to 12967, putting it on pace for a fifth straight decline after giving up 215 points over the past four trading sessions. The Standard & Poor's 500-stock index lost 12 points, or 0.9%, to 1406, while the Nasdaq Composite slid 18 points, or 0.6%, to 2968.

Leading the declines were energy, materials and industrial stocks, on a day that saw all 10 of the S&P 500 sectors and all but one of the 30 Dow components in negative territory. Among the Dow's biggest decliners were Hewlett-Packard, Chevron and Exxon Mobil, which fell 2.6%, 1.7% and 1.8%, respectively.

The declines came in spite of a pair of economic reports that handily topped economists' expectations. The Institute for Supply Management's Chicago-area purchasing managers index for December came in at 51.6, beating estimates for a gain to 51.0. Pending-home sales in November, meantime, rose to their highest level in nearly three years; the monthly gain of 1.7% topped expectations for a 1.2% rise.

In Washington, President Barack Obama invited congressional leaders to the White House on Friday afternoon to try to hammer out a deal before sharp tax increases and spending cuts go into effect on Jan. 1 in what is known as the fiscal cliff. The House of Representatives isn't set to reconvene until Sunday evening.

Stocks momentarily pared some of their morning losses after a news report reiterating President Obama's plan to offer a scaled-back budget plan at the Friday afternoon meeting. But investors remained cautious on any imminent deal, and reports in late trading suggested that the two sides were still far apart on any deal.

"We're all waiting with bated breath, wondering what's going to happen," said Dan Peirce, a portfolio manager with State Street Global Advisors. "You're seeing intransigence on both sides. You hate to think we're in the kind of situation where markets have to get really, really ugly to induce a constructive response from federal leaders."

European markets traded broadly lower, with the Stoxx Europe 600 down 0.7%, as fears over a U.S. fiscal crisis and signs of continued economic contraction in the euro-zone kept investors on the defensive. A preliminary gauge of activity indicated the euro-zone economy looked set to contract for a third-straight quarter in the fourth quarter. France, meantime, revised its third-quarter growth estimate to 0.1% from 0.2%.

Separately, shares of Spanish lender Bankia tumbled 27% after an advisory committee of Spain's benchmark stock index, the IBEX 35, decided the lender would be excluded from the index as of Jan. 2. Spain's IBEX 35 slumped 1.8%.

Meanwhile, Asian markets continued to rally amid hopes that the Bank of Japan will implement more aggressive stimulus measures. Japan's Nikkei Stock Average ran up 0.7% to a 21-month high, and has surged 10% so far in December. China's Shanghai Composite climbed 1.2% to a six-month high.

Crude-oil futures slipped 0.1% to settle at $90.80 a barrel, while gold futures eased 0.5% to $1,654.90 an ounce. The dollar rose against the euro but fell against the yen. Demand for Treasurys gained, pushing the yield on the benchmark 10-year note down to 1.712%.

Among stock movers, Barnes & Noble climbed 5.5% after London-listed Pearson said it would invest $89.5 million in Nook Media, the bookseller's digital business. Pearson slipped 0.3%.

MagicJack VocalTec advanced 10% after the company, which provides voice-over Internet-protocol services, raised its quarterly earnings estimate and appointed a new chief executive.

Facebook slipped 0.5% after a report in the New York Post suggested Instagram, which Facebook acquired for $1 billion earlier this year, may have shed nearly 25% of its daily active users following a change in the photo-sharing app's privacy rules.

Write to Jonathan Cheng at jonathan.cheng@wsj.com

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