(CEP News) - Stocks are lower on reports and rumours about the ill health of the U.S. financial sector.

Most recently, the Dow Jones industrial average was down 177 points to 7955, the S&P 500 was down 21 points to 849 and the Nasdaq was down 41 points to 1632. In Canada, the S&P/TSX composite index was down 208 points to 9230.

A blog-based rumour circulated that the bank stress test showed 16 of the 19 banks as technically insolvent gained traction overnight. Serious market watchers were quick to dismiss the rumour, but it led to slump in financials.

Treasury spokesperson Andrew Williams also dismissed the rumour, saying they don’t yet have stress test results. There is “no basis that any of this is true,” he told Bloomberg.

The stress test has also been the subject of speculative reports from legitimate news organizations. There was a suggestion that U.S. banks would need $1.5 trillion if defaults are similar to the 1982 recession. There is also a report saying TARP capital could be converted to common equity.

Concrete news has been favourable. Bank of America smashed earnings estimates as it posted a 44-cent gain compared to the 4-cent consensus estimate. Eli Lilly and Halliburton also beat estimates.

European stock markets were also lower, with the Stoxx 50 down 61 points to 1935, the UK FTSE 100 down 108 points to 3985 and the German DAX down 179 points to 4498.

The U.S. dollar and yen are benefiting from the uncertainty.

The U.S. dollar was down 0.71 to 98.44 against the yen and the Dollar Index was up 0.454 to 86.435.

The euro was down 0.0112 to 1.2933 against the U.S. dollar, up 0.0141 to 1.5968 against the Canadian dollar, up 0.0071 to 0.8888 against the pound sterling and was lower by 2.01 to 127.32 against the yen.

The pound sterling was down 0.0247 to 1.4551 against the U.S. dollar and up 0.0010 to 1.7964 against the Canadian dollar.

WTI crude oil was down $3.35 to $46.98. The front month gold contract at the Chicago Board of Trade was up $9.00 to $877.00 per ounce.

In fixed income, U.S. two-year yields were most recently down 4.9 bps to 0.92%, with five-year yields down 7.3 bps to 1.82%, 10-year yields down 8.0 bps to 2.87% and 30-year yields down 7.5 bps to 3.72%. The Eurodollar September 09 contract was up 1.5 ticks to 98.87. The yield curve was flatter, with the 10/2-year spread down 3.3 bps to 194.54 bps.

Yields on two-year Canadian government bonds were down 2.7 bps to 1.13%, with five-year yields down 5.0 bps to 1.92%, 10-year yields down 5.7 bps to 2.95% and 30-year yields down 4.3 bps to 3.71%. The September 09 BAX contract was up 2.0 ticks to 99.45.

In Germany, returns on two-year German bonds were down 3.9 bps to 1.43%, with five-year yields down 6.1 bps to 2.39%, 10-year yields down 7.3 bps to 3.20% and 30-year yields down 6.7 bps to 4.01%.

Yields on UK two-year bonds were down 3.0 bps to 1.40%, with five-year yields down 7.6 bps to 2.46%, 10-year yields down 5.8 bps to 3.30% and 30-year yields down 6.3 bps to 4.44%.

All data taken at 9:51 a.m. EDT.

By Adam Button, abutton@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca

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Posted in Categories: Australia, Canada, Economy, Eurozone, Releases, Stocks, UK, USA.

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