Wall Street down as Japan signals slower global economy

NEW YORK (Reuters) - Stocks fell on Monday after six days of gains for the S&P 500 and as data showed Japan's economy grew much less than expected in the second quarter, a reminder of the headwinds faced by the global economy.

Japan's gross domestic product expanded just 0.3 percent in April-June, half the pace expected, raising doubts about the strength of the recovery and highlighting the impact of Europe's debt crisis on worldwide demand.

Traders are looking for direction, with the S&P 500 hovering close to its highest in more than four years. Stocks' recent gains have relied mainly on investor hopes for central bank stimulus but also on tentative signs of life from the U.S. labor and housing markets.

Much of the money entering the U.S. equity market since the rally started in June has gone into defensive sectors. But investors are eyeing early signs that more aggressive areas of the market, such as small caps and cyclical sectors, are starting to do better, a key factor if the rally is to continue.

"Those are the sectors that will need to lead to continue the rally, whether they can do it on their own remains to be seen. I'm not sure we will get out of the summer without a pullback," said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Sampson said she was still cautious over the potential for developments in Europe's debt crisis to blindside the market and said she would be closely watching data releases to see if improvement in the U.S. labor market would continue.

The Dow Jones industrial average <.dji> dropped 89.97 points, or 0.68 percent, to 13,117.98. The Standard & Poor's 500 Index <.spx> dropped 7.22 points, or 0.51 percent, to 1,398.65. The Nasdaq Composite Index <.ixic> dropped 15.83 points, or 0.52 percent, to 3,005.03.

The benchmark S&P index had risen 3 percent over the prior six sessions, its longest rally since December 2010, but gains have slowed, with the index hovering at highs not seen since May.

"It is encouraging that offensive areas of the market are joining the rally," wrote Ari Wald, a technical analyst at Brown Brothers Harriman in New York. "In particular, the Russell 2000 <.rut>, the S&P 500 High-Beta Index <.sp5hbi>, and the iShares MSCI EAFE Index <.msciea>, broke above key resistance last week and completed near-term bottoming formations."

"This 'risk-on' breakout should provide a tailwind for the market and assist the S&P 500 in its attempt to move above its 1,420 April cycle high," he said. "A failure to confirm new cycle highs in the coming weeks to months would create worrisome multimonth divergences."

Late on Friday, the president of the San Francisco Federal Reserve said the Fed should launch a fresh round of bond buying to lower the U.S. unemployment rate more quickly, fuelling speculation that the central bank could soon unveil a new round of quantitative easing.

The CBOE VIX Volatility index <.vix>, which is seen as a proxy for investors' fears, fell 3.1 percent to 14.29, its lowest level in five months. The decline was unusual as the index typically moves inversely to the S&P 500. It suggested investors were not overly worried about the market's outlook.

Swiss private bank Julius Baer is to buy Bank of America's Merrill Lynch wealth manager outside the United States, paying 860 million Swiss francs ($882 million) for the loss-making business to boost by 40 percent its assets managed. Julius Baer plans to raise 1.19 billion Swiss francs ($1.22 billion) in new capital for the deal.

Bank of America shares fell 0.4 percent to $7.70.

Sysco Corp shares gained 4.1 percent at $30.01 before market's open after the food distributor reported fourth-quarter earnings.

According to Thomson Reuters data through Monday, of the 454 companies in the S&P 500 that have reported second-quarter earnings to date 68 percent have reported earnings above analyst expectations, matching the beat rate for the last four quarters.

Comverse Technology Inc said it had agreed to be acquired by Verint Systems Inc following the planned spin-off of its Comverse Inc telecom business. Comverse shares fell 1 percent to $5.65.

Japan's Tokyo Electron Limited said it will acquire chip-equipment maker FSI International Inc for $252.5 million in cash to add a key technology to its chipmaking capabilities. FSI's shares rose 52 percent.

(Reporting by Edward Krudy Editing by Kenneth Barry)

Source: http://news.yahoo.com/stock-index-futures-signal-dip-early-trade-075554917--finance.html

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