Nov. 22 （Bloomberg） -- U.S. stocks fell, ending a three-day gain for the Standard & Poor's 500 Index, amid speculation a bailout for Ireland will fail to stop Europe's debt crisis from spreading and as federal agents searched three hedge funds.
Bank of America Corp. and JPMorgan Chase & Co. led a drop in the Dow Jones Industrial Average, retreating more than 2.6 percent, following a slump in European banks. Goldman Sachs Group Inc. slid 4.3 percent after the Wall Street Journal reported the securities firm is the subject of a federal insider-trading investigation. Exxon Mobil Corp. and Alcoa Inc. fell at least 1.1 percent as commodities prices retreated.
The S&P 500 slid 0.4 percent to 1,195.36 as of 2:49 p.m. in New York, paring earlier declines that stemmed from the hedge- funds raids as part of an insider trading probe. The Dow lost 52.71 points, or 0.5 percent, to 11,150.84.
"There's still fear of dominoes falling one by one," said Madelynn Matlock, who helps oversee $13.8 billion at Huntington Asset Advisors in Cincinnati. "Everybody knew that Ireland would take a bailout. However, you still have the underlying issues with the whole European debt situation. Even if you have a better economy, you still have costs associated with getting rid of these hangovers."
The S&P 500 has risen 16 percent from its 2010 low on July 2 as the Federal Reserve prepared to increase asset purchases to stimulate growth and as quarterly results at companies surpassed analyst projections. The index fell the most in almost three months on Nov. 16 amid speculation the debt crisis in Europe is worsening and that China will act to slow its economy.
'Credit Negative'
Moody's Investors Service said the bailout, which Goldman Sachs Group Inc. estimates may total 95 billion euros （$130 billion）, may increase Ireland's debt burden and pose a "credit negative" for the country, the second euro nation to need a rescue as the cost of saving Irish banks made it vulnerable to a rerun of the Greek debt crisis that destabilized the currency.
Irish Prime Minister Brian Cowen said his government will resign after passing the country's budget, responding to calls from the Green Party for January elections amid voter discontent at his handling of the crisis.
Financial shares had the biggest drop in the S&P 500 among 10 groups as the FBI searched the offices of Level Global Investors LP and Diamondback Capital Management LLC in the southern Connecticut cities of Greenwich and Stamford. Agents also executed a warrant at Boston-based Loch Capital Management, according to a person familiar with the probe who declined to be named because the matter isn't public.
The raids today stemmed from a series of insider trading investigations directed by the office of Manhattan U.S. Attorney Preet Bharara, according to a person familiar with the probes.
'Gaining Legs'
"This FBI probe seems to be gaining some legs," said Dan Deming, a trader at Stutland Equities LLC on the floor of the Chicago Board Options Exchange. "The banking sector is feeling some heat across the board as the feds seem to be stepping up their game a little bit. It's definitely having an impact."
Bank of America declined 3.5 percent to $11.26. JPMorgan Chase dropped 2.7 percent $38.36. Birmingham, Alabama-based Regions Financial Corp. sank 3.6 percent to $5.30.
Goldman Sachs fell 4.3 percent to $159.49, helping lead the S&P 500 Diversified Financials Index to the biggest decline among 24 industries.
The U.S. Securities and Exchange Commission and other federal officials are nearing the end of a probe into possible insider-trading networks including consultants, hedge-fund and mutual-fund traders and investment bankers, the Wall Street Journal reported on Nov. 19, citing unidentified people familiar with the situation.
One of the focuses of the probe is whether Goldman Sachs bankers divulged information about health-care acquisitions and other transactions, the newspaper said.
'Confidence Game'
"The market is in large part a confidence game," said James Gaul, a money manager at Boston Advisors LLC in Boston, which manages $1.7 billion. "If the perception is that there are a number of bad actors out there that are fixing the system, you're going to get a little bit of confidence coming out."
U.S. banks could lose more than $100 billion if they are forced to buy back soured mortgage loans, Barron's reported over the weekend. In addition, the Financial Times said the top 35 U.S. banks will be short of between $100 billion and $150 billion after new international capital requirements are imposed.
Energy and raw-materials slumped as the U.S. dollar rose, reducing the appeal of commodities. Exxon, the largest energy company, lost 1.3 percent to $69.62. Alcoa, the largest U.S. aluminum producer, declined 1.2 percent to $13.22.
Stock-Bond Correlation
For the first time since the financial crisis started, U.S. shares are moving independently of the bond market, a sign that profits and valuations are guiding investors more than concern about the economy.
The 30-day correlation coefficient measuring how often the S&P 500 moves in tandem with 10-year Treasury yields fell to minus 0.42 from a record 0.89 in June, data compiled by Bloomberg show. Readings of 1 indicate prices are moving together, while zero shows no link and minus 1 means they are going in opposite directions. Stocks and debt are ending a lockstep relationship that began in July 2007 and lasted through the worst recession since the 1930s.
--With assistance from Jeff Kearns and Whitney Kisling in New York and Julie Cruz in Frankfurt. Editors: Stephanie Borise, Michael P. Regan
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