Wall St. slides as Portugal bank worry triggers selloff

NEW YORK - US stocks fell on Thursday after the health of Portugal's top listed bank was questioned, bringing back to markets the specter of a weakened Europe.

With US stocks near record highs, the slide in Europe translated into broad selling on Wall Street. Many market participants have called for a pullback, with the steady S&P 500 yet to see a daily decline of 1 per cent or more since April 10.

Espirito Santo Financial Group (ESF.LS: Quote, Profile, Research, Stock Buzz), the largest shareholder in Portugal's Banco Espirito Santo (BES.LS: Quote, Profile, Research, Stock Buzz), suspended trading in its shares and bonds, citing "material difficulties" at parent company ESI. Shares of the bank fell 17.2 per cent. The S&P 500 financial sector .SPSY fell 1.3 per cent.

Portugal's benchmark stock index .PSI20 fell 3.8 per cent and Italy's FTSE MIB .FTMIB fell 2 per cent. An index of European bank shares was down 1.9 per cent.

The Dow Jones industrial average .DJI fell 117.1 points or 0.69 per cent, to 16,868.51, the S&P 500 .SPX lost 12.79 points or 0.65 per cent, to 1,960.04 and the Nasdaq Composite .IXIC dropped 41.37 points or 0.94 per cent, to 4,377.67.

"In a world of global news, you can always find something that is not doing well, whether it is political events in Iraq or banking in Portugal," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

"The real test will be the earnings and that will either give confidence to people to come back in or make them realise the prices they have been paying are just too high."

Investors in Lumber Liquidators (LL.N: Quote, Profile, Research, Stock Buzz) certainly thought they were paying too much. Shares fell 21.5 per cent to $55.31 after the hardwood flooring retailer cut its earnings outlook.

Sandwich chain Potbelly Corp (PBPB.O: Quote, Profile, Research, Stock Buzz) estimated second-quarter revenue and profit below analysts expectations and its shares slid 24.2 per cent to $11.10.

Declining issues outnumbered advancing ones on the NYSE by 2,257 to 604, for a 3.74-to-1 ratio on the downside. On the Nasdaq, 2,167 issues fell and 340 rose for a 6.37-to-1 ratio favouring decliners.

The CBOE Volatility Index hit its highest since May 20 before paring gains. The VIX last week hit 10.28, its lowest level since early 2007, and was recently up 8.5 per cent at 12.64.

Earlier in the session, futures held on to steep losses after data showed filings for new US unemployment benefits claims fell last week to one of the lowest levels since before the 2007-09 recession.

In other data, US wholesale inventories rose in May, reinforcing the view that economic growth should surge in the second quarter following a weak start to the year.