Retail stocks advanced 0.5 percent Monday, but Moody’s Investors Service’s downgrade of Greece’s government bonds into junk territory erased a three-digit advance by the Dow Jones Industrial Average.
The S&P Retail Index picked up 2.13 points to 436.16 after moving as high as 441.97 earlier in the day. The Dow, which rose more than 110 points before noon, gave back all of its gains and more, finishing at 10,190.89, a drop of 20.18 points or 0.2 percent.
Developments in Europe contributed to the gains in the morning as well as the declines in the afternoon. U.S. markets opened on the upswing after a report that industrial production in the Eurozone grew 0.8 percent in April compared with March, according to the European Union’s statistical office. Economists were expecting a milder 0.5 percent gain.
The report was seen as auguring well for a sustained, if slow, recovery in the Western Hemisphere, helping the CAC 40 move ahead 2 percent to 3,626.04 in Paris, the DAX push up 1.3 percent to 6,125 in Frankfurt and the FTSE 100 climb 0.7 percent to 5,202.13 in London.
Not long after European markets closed, Moody’s downgraded Greek government bonds to “Ba1” from “A3,” a four-notch drop that reignited fears of a credit crisis spreading throughout, and possibly beyond, Southern Europe. Moody’s said the rating shift indicates a greater, although still low, risk of a Greek default.
This spring, the European Union and the International Monetary Fund set up a $1 trillion bailout package for cash-strapped European countries, but investors are still worried about the stability of the region’s finances and the euro, which has fallen to four-year lows but gained about 1 cent Monday to $1.222.
“The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasibleand incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels,” said Sarah Carlson, Moody’s lead analyst for Greece. “Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a ‘Ba1’ rating.”
Although the Moody’s action depressed the major indices, retail stocks were able to retain some of their gains. Conspicuous among those in positive territory was American Apparel Inc., the Los Angeles-based vertical retailer of trendy basic apparel, which saw its shares advance 55 cents, or 40.7 percent, to $1.90. The company had no news to report Monday, but its stock has been slowly coming back from a shellacking suffered since May 19, when shares were off 40.5 percent, to $1.63, after the company said it didn’t expect to be in compliance with a debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) covenant in its credit agreement with Lion Capital as of the end of this month. Lion provided American Apparel with $80 million in financing in March 2009, allowing it to pay off a $51 million loan from SOF Investment.
In Asia, Tokyo’s Nikkei 225 ended up 1.8 percent to 9,879.85 and Hong Kong’s Hang Seng Index increased 0.9 percent to 20,051.91.
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