Wall Street extends deepest slump of 2012; culprit is Spain’s debt

NEW YORK — The stock market extended its longest and deepest slump of the year Tuesday, caught between a recurring nightmare of European debt and the beginning of uncertain corporate earnings reports at home.

The Dow Jones industrial average fell 213.66 points, its biggest decline of the year and third triple-digit loss in four days. It closed at 12,715.93, its lowest since Feb. 2.

A five-day losing streak has shaved about 550 points off the Dow, more than half what it gained from January through March.

In Europe, concern about the financial health of Spain intensified, and borrowing costs for Spain and Italy rose considerably. Spain’s borrowing costs crept closer to levels that forced other countries to seek bailouts.

European markets sold off while Wall Street was still sleeping. The main stock indexes in Spain and France closed down about 3 percent, the equivalent of a 400-point drop in the Dow.

“They’ve managed to put a Band-Aid on the debt crisis, but there’s really no solution,” said Colleen Supran, a principal at the investment adviser Bingham, Osborn & Scarborough in San Francisco. “And Spain is a much bigger problem than Greece.”

The yield on 10-year Spanish bonds rose to almost 6 percent. The point at which governments can no longer afford to raise money on the international bond markets and must seek bailouts is generally considered to be 7 percent.

The 7 percent level forced Greece, the last focal point of the European debt crisis, to seek rescue loans. But Spain’s economy is more than five times as large as Greece’s.

Jeffrey Cleveland, senior economist at Payden & Rygel, compared the financial markets to a person coming off a sugar high – in this case, the bailout package for Greece put together late last year.

“It works for a few minutes, but eventually reality reasserts itself,” Cleveland said. “Nothing has been solved in Europe. People are paying attention to it now.”

In the United States, stock in Alcoa, the aluminum company, surged 5.3 percent after the market closed. Minutes after the closing bell, the company reported profit of 9 cents per share. Analysts expected a loss of 4 cents.

Alcoa was the first of the 30 stocks in the Dow to report its quarterly results, and earnings will help determine whether the market continues its slide or reverses it.

After nine consecutive quarters of earnings growth, analysts think earnings will be flat this time. Those predictions came before Alcoa’s impressive results, however.