The US Institute for Supply Management said its non-manufacturing index fell to 41.9% in January from 54.4% in December, well below the 53.0% expected by economists. Readings below 50% indicate contraction.
The figure was the second low on record and the unexpected contraction in the service sector rekindled investors’ concerns that the US economy is headed for recession.
In addition, the outlook for financials remains clouded by uncertainty over charges linked to bad home loans. Fitch Ratings indicated that it will lower the rating on more than half of the $220 billion wrapped up in bond funds called collateralized debt obligations. Further downgrades would mean the securities – many of which are backed by mortgages – are worth even less than many investors thought.
Banc of America Securities downgraded rating on Yahoo Tuesday to neutral from buy, because it believed the acquisition of Yahoo by Microsoft could face significant regulatory hurdles.
In early trading, the Dow fell 205.91 to 12,429.25. Broader stock indicators also dropped sharply, with The Standard & Poor’s 500 index easing 23.45 to 1,357.37, while the Nasdaq composite index falling 32.76 to 2,350.09. (Xinhua)
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