NEW YORK — Stocks closed lower on Wall Street as investors worried that a controversial proposal to seize money from depositors in Cyprus could set off another bout of anxiety over Europe’s shared currency.
The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to 14,452.06 Monday. It had plunged as much as 110 points in the early going, briefly turned positive in the afternoon then fell again in the last hour of trading. The Standard & Poor’s 500 index fell 8.60 points, or 0.6 percent, to 1,552.10. The Nasdaq composite dropped 11.48 points, or 0.4 percent, to 3,237.59.
European markets recovered most of an early slide and closed with modest losses. The euro fell to a three-month low against the dollar.
“Europe has got problems,” said Uri Landesman, the president of Platinum Partners, a hedge fund. “You could get more stuff like this, and the market isn’t priced to handle that.”
A weekend agreement between Cyprus and its European partners called for the government to raid bank accounts as part of a $20.4 billion financial bailout.
Cypriot authorities, facing an uproar, delayed a parliamentary vote on the seizure and ordered the country’s banks to remain closed until Thursday while they try to modify the deal to lessen the impact on small depositors.
A rejection of the European aid package could see Cyprus go bankrupt and possibly drop out of the euro currency – an outcome that would be even more damaging to financial markets’ confidence.
Even while playing down the chance of fresh market turmoil, experts warned that the surprise move broke an important taboo against making depositors pay for Europe’s bailouts. As a result, it might have longer-term consequences for confidence in Europe’s banking system – and its ability to end its financial crisis.
“It’s a precedent for all European countries. Their money in every bank is not safe,” said lawyer Simos Angelides at an angry protest outside parliament in Cyprus’ capital, Nicosia, where people chanted, “Thieves, thieves!”
The U.S. stock market’s resilience suggests that traders consider the Cyprus situation to be contained for now, said Quincy Krosby, a market strategist for Prudential.
The threat of rising volatility might deter the Fed from thinking about ending its economic stimulus program. The central bank starts a two-day policy meeting today.
Markets in Europe and Asia also fell during early trading, before retracing some of their losses later in the day. Germany’s DAX index dropped 0.4 percent and Spain’s main stock index shed 1.3 percent. Indexes in Britain and France each lost 0.5 percent.
The euro fell almost a penny against the dollar to $1.2954, touching its lowest level in three months. Gold climbed $12 to $1,604.60 an ounce.
The U.S. stock market’s reaction to euro zone developments has become more muted over time.
The Dow slumped more than 8 percent last year between May 1 and June 1 on concerns that Spain and Italy would be dragged into Europe’s debt crisis. While the Dow initially dropped last month in reaction to the Italian election results, it has since gained 4.6 percent. Likewise the market recovered much of the early loss Monday prompted by Cyprus’s bailout deal.
The yield on the 10-year U.S. Treasury bond, which moves inversely to its price, fell to 1.96 percent from 1.99 percent as investors moved money into low-risk investments. Yields on bonds issued by Spain and Italy, the two most vulnerable large European economies, rose but only slightly. Spain’s benchmark 10-year yield rose to 4.97 percent from 4.91 percent, and Italy’s rose to 4.57 percent from 4.55 percent.
The stock market’s resilience suggests that traders consider the Cyprus situation to be contained for now, said Quincy Krosby, a market strategist for Prudential. The threat of rising volatility may also deter the Fed from thinking about ending its economic stimulus program. The central bank starts its second two-day policy meeting of the year Tuesday.
“Absent the Cyprus flare-up, the markets were slowing a bit and it looked as if investors were digesting the gains and waiting for the next catalyst,” said Krosby.
Financial stocks were the biggest decliners in the S&P 500. Investment bank Morgan Stanley fell 60 cents, or 2.5 percent, to $22.99. Citigroup dropped $1.02, or 2.2 percent, to $46.24.
Goldman Sachs said Monday that it had lifted its end-of-year target for the S&P 500 to 1,625 from its previous target of 1,575. The investment bank is forecasting that the U.S. economy will grow 2 percent this year and 2.9 percent next year. It also predicts that corporate deals and dividend payments will increase.
Deutsche Bank also said Monday it was lifting its year-end prediction for the S&P 500 to 1,625 from 1,600, forecasting an upturn in business spending.
Among other stocks making big moves:
- Schlumberger dropped $3.06, or 3.9 percent, to $76.34 after the oilfield services company said that its first quarter activity was below its expectations as customers reactivated fewer rigs than forecast.
- Boeing fell $1.25, or 1.4 percent, to $85.18 after archrival Airbus signed its biggest deal of all time on Monday. The European plane maker won an order from Indonesia’s Lion Air worth 18.4 billion euros ($24 billion) for its short haul A320 and A321 jets.