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Stocks mired in sell-off

By Julianne Pepitone, staff reporter

NEW YORK (CNNMoney.com) -- Stocks extended losses to end sharply lower Wednesday, amid more signs of a deepening crisis in Europe.

Moody's said it was considering a downgrade of Portugal's debt, while three people were reported dead due to riots in Greece.


The Dow Jones industrial average (INDU) lost 60 points, or 0.6%, to end at 10,866.83. The blue-chip index had fallen more than 100 points earlier in the trading day.

The S&P 500 index (SPX) fell 8 points, or 0.7%, to close at 1,165.87. The Nasdaq composite (COMP) was down 22 points, or 0.9%, to settle at 2,402.29.

Moody's rating agency released a statement early Wednesday that it had placed Portugal's investment-grade bonds "on review for possible downgrade ... by one, or at most two, notches."

Also Wednesday morning, Greek authorities said three people had died in central Athens in a fire during street riots protesting severe new government austerity measures that are attached to its $146 billion bailout.

These and other overseas worries have slammed U.S. stocks this week. Global markets also felt the blow Tuesday, amid rumors that Spain was negotiating a bailout from the International Monetary Fund. Although both Spanish officials and the IMF denied the rumors, the S&P fell 2.4% and the blue-chip Dow tumbled 2% Tuesday.

Europe and volatility: On Tuesday, Wall Street's key index of volatility hit its highest level in more than two months. The VIX (VIX), which gauges fear in the market, surged more than 18% to close at 23.84 Tuesday. On Wednesday, the VIX ended 5.4% higher at 25.12.

Volatility will likely continue, as investors will be forced to weigh chaotic foreign events with domestic improvements, said Dave Hinnenkamp, chief executive at KDV Wealth Management.

"This morning's steep drop was probably more of an overreaction to the uncertainty," Hinnenkamp said. "We might be in for more downward pressure, but if you look past all of the noise that's out there now the U.S. is well-positioned."

Upbeat U.S. earnings and improving economic data bode well for the domestic market long term, Hinnenkamp said.

Economy: The latest readings on jobs, though not enough to distract investors from the debt woes in Europe, showed some turnaround in the domestic job market.

Outplacement firm Challenger said planned job cuts in April dropped to the lowest level in nearly four years. A separate report showed private-sector employers added jobs for the third consecutive month.

Earnings: Before the opening bell, Time Warner (TWX, Fortune 500) reported its highest quarterly profit in company history, easily beating Wall Street's forecasts. But Time Warner shares ended 2.4% lower.

The New York-based parent company of CNNMoney.com said its net income rose to $725 million, or 62 cents per share, up 10% from a year earlier. Analysts expected earnings of 48 cents per share.

Companies: Shares of biotech firm InterMune (ITMN) plunged to end 75% lower Wednesday after the Food and Drug Administration rejected the firm's application for a lung drug.

Outlook: Analyst Hinnenkamp said he is bullish on U.S. equities, and he "[doesn't] think European debt concerns will create the next Armageddon."

Greece and Portugal are two of the smaller economies in the euro zone, Hinnenkamp noted, so downgrades to their ratings are not of major concern.

"Independently, these aren't huge issues," Hinnenkamp said. "The worry lies in whether the rest of the European Union has to pick up the tab, and if that draws larger countries into debt problems as well."

World markets: Stocks in Europe ended lower, extending the previous session's sharp losses.

Asian markets also declined. Hong Kong's Hang Seng index shed 2.1% and Taiwan's TSEC 50 index plunged nearly 3%. Markets in Japan were closed.

Other markets: The dollar rose 1.3% versus the euro, with the shared currency near a 12-month low. The U.S. currency also was up versus the British pound, but it fell 0.8% against the yen.

Oil prices plummeted $2.77 to settle at $79.77 a barrel, while COMEX gold for June delivery was rose $5.80 to settle at $1,169.20 an ounce.

Bond prices rallied, pushing the 10-year Treasury yield down to 3.55%. Bond prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers topped winners four to one on volume of 1.5 billion shares. On the Nasdaq, decliners bear advancers ten to three, on volume of 3 billion shares. To top of page

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