RTTNews - Following a strong start, stocks showed a notable downturn on Wednesday amid waning buying interest and disappointing results from a ten-year note auction. Nonetheless, the major averages were able to finish only modestly lower, as some traders picked up stocks at reduced prices later in the session.

The Treasury Department's auction of $19.0 billion worth of ten-year notes drew a higher than expected yield of 3.99 percent, raising concerns about the outlook for interest rates. At the same time, the bid-to-cover ratio, an indicator of demand, rose to 2.62 from 2.47 during the previous ten-year note auction in May.

The bond market has been in focus recently, as traders have expressed concerns that interest rates have continued to rise despite the Federal Reserve's efforts to keep rates low through quantitative easing.

On the economic front, the Federal Reserve's Beige Book report indicated that conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the twelve Fed districts noted a moderation in the downward trend, mitigating some market pessimism.

While the Beige Book also said that contacts from several Fed districts indicated an improvement in their expectations, they do not see a substantial increase in economic activity through the end of the year.

Separately, a report from the Commerce Department showed that the U.S. trade deficit for the month of April came in modestly wider than in March, as the value of exports fell by more than the value of imports.

The report showed that the trade deficit widened to $29.2 billion in April from a revised $28.5 billion in March. Economists had expected the deficit to widen to $29.0 billion from the $27.6 billion originally reported for the previous month.

In corporate news, the Supreme Court allowed the sale of Chrysler's assets to Italian automaker Fiat to move forward. In lifting a stay on the sale, the high court rejected a move by a group of plaintiffs, including three Indiana public pension organizations, to block the sale.

Both companies and the White House had warned that further delays by the Supreme Court could have led to Fiat's withdrawal from the deal.

Meanwhile, the House Oversight and Government Reform Committee said they've subpoenaed the Federal Reserve for documents, including e-mails to and from Fed Chairman Ben Bernanke, to explore the genesis of Bank of America's December purchase of Merrill Lynch.

On Thursday, the Committee will host Ken Lewis, former Chief Executive Officer of Bank of America, as part of a growing investigation into whether government officials pressured the bank to withhold details about the deal from investors despite ballooning losses at the brokerage firm.

The major indices pared some of their losses late in the session but remained stuck in the red. The Dow closed down 24.04 points or 0.3 percent at 8,739.02, the Nasdaq closed down 7.05 points or 0.4 percent at 1,853.08 and the S&P 500 closed down 3.28 points or 0.3 percent at 939.15.

Sector News

Most of the major sectors moved lower over the course of the trading day, contributing to the downturn that was shown by the broader markets.

Brokerage stocks turned in some of the day's worst performances, with the Amex Securities Broker/Dealer Index falling by 1.8 percent on the day. The day's decline saw the index give back of its recent gains.

Morgan Stanley (MS) helped to lead the sector lower, ending the session down 5.6 percent. With the loss, Morgan Stanley pulled back further off the nearly nine-month closing high that it set on Monday.

Airline stocks also saw a notable retreat, with the Amex Airline Index sliding by 2.3 percent on the day, continuing to offset recent gains. The move came as the price of oil climbed to its highest level of the year earlier in the session and as airline CEOs commented on the economic downturn continuing to have an adverse impact on the industry.

Significant weakness was also visible among banking, commercial real estate, electronic storage and biotechnology stocks. The pullback seen by the variety of sectors reflects the broad-based weakness in the markets.

On the other hand, utilities, natural gas and oil service stocks bucked the day's downtrend. Natural gas and oil stocks were helped by an increase in commodity prices.

Dow Components

Most of the Dow components ended the session in the red, contributing to the mild pullback by the blue chip index.

Helping to lead the Dow lower were shares of McDonald's (MCD), which dropped by 1.2 percent on the day. With the decline, the stock extended its recent losses, backing further away from the nearly five-month highs set last week.

Additionally, shares of Caterpillar (CAT) and Coca-Cola (KO) also weakened considerably, falling by 1.6 percent and 1.4 percent on the day. Further weakness emerged in shares of Kraft Foods (KFT), General Electric (GE) and JP Morgan Chase (JPM).

Bucking the day's downtrend were shares of Alcoa (AA) and Microsoft (MSFT), which rose by 3 percent and 2.1 percent, respectively. Alcoa closed at its best level in five months, while Microsoft finished at its best closing level in seven months.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended Wednesday's session notably higher. Japan's benchmark Nikkei 225 Index rose by 2.1 percent, while Hong Kong's Hang Seng closed up by 4.0 percent.

The major European markets also closed moderately higher. The U.K.'s FTSE 100 Index closed up by 0.7 percent, while the French CAC 40 Index and the German DAX Index finished up by 0.6 percent and 1.1 percent, respectively.

In the bond markets, treasuries finished notably lower, hurt by the results of the ten-year note auction. Subsequently, the yield on the benchmark ten-year note closed at 3.94 percent, an increase of 8.2 basis points on the day.

Looking Ahead

Traders are likely to focus on two key economic reports on Thursday, with retail sales and jobless claims on tap for the day. The reports are both scheduled to be released ahead of the opening bell on Wall Street, at 8:30 a.m. ET.

Retail sales for May are expected to rise to 0.5 percent from last month's negative 0.4 percent. The Commerce Department report will be especially closely watched, as traders will look to see if improved consumer sentiment has translated to spending.

Trading is also likely to be driven by the Labor Department's jobless claims data for the week ended June 6th. Economists expect first time claims to come in at 625,000 compared to 621,000 the previous week.

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