Stocks tumble amid Europe uncertainties

Brendan Mcdermid / REUTERS

Traders work on the floor of the New York Stock Exchange Wednesday.

By msnbc.com news services

Stocks tumbled Wednesday as uncertainties over Europe's finances and tepid U.S. economic data gave investors little reason to make any decisive move after a sharp snap-back rally.

The Dow Jones industrial average closed the day down 77 points.

Traders called the environment opaque and are worried about getting caught on the wrong side of what could be a sharp swing in the market. Investors are on guard ahead of the upcoming weekend elections in Greece, whose outcome have the potential to put Greece on course to exit the euro zone, and next week's policy meeting of the Federal Reserve.

Stocks traded within a narrow band on Wednesday after moving in a wide and volatile trading range earlier this week but were almost unchanged on Friday's close.

There was a defensive tilt to trading as gains in sectors such as healthcare and telecoms offset declines in cyclical sectors such as materials.

Michael James, a senior trader at Wedbush Morgan in Los Angeles, said the potential for landmark events in the Greek elections over the weekend and the Fed's policy meeting next Tuesday and Wednesday were driving a wait-and-see approach.

"I think a fair amount of it is positioning ahead of Chairman Bernanke's comments and any potential Fed stimulus announcement, along with a fair amount of uncertainty and people squaring positions and taking some shorts off ahead of the Greek elections," he said.

Shares of JPMorgan Chase & Co were a standout, jumping as the bank's chief executive, Jamie Dimon, defended the portfolio behind JPMorgan's recent multibillion-dollar trading loss, telling lawmakers it was a genuine hedge that would make the firm a lot of money if a credit crisis hit.

Greece elections are scheduled for Sunday, and investors fear the outcome could mean the country embarks on a potentially destabilizing exit from the euro zone.

Also weighing on the market, retail sales, excluding autos, fell in May to their worst level in two years, the latest data to point to sluggish U.S. growth.

Recent U.S. economic data, most notably the May payroll report, has pointed to sluggish domestic growth, a worrying development for investors.

The S&P 500 moved more than 1 percent in opposite direction on the past two trading days, which were largely dictated by the events in the euro zone.

On Tuesday the index bounced after falling toward the 1,300 level, a psychological milestone that some traders are using to trade against as index levels assume more importance given the lack of a clear outlook.

Investors have pushed Spain's 10-year borrowing costs to their highest level since the launch of the euro in 1999, adding to uncertainty over the plan to bail out the country's struggling banks.

"We don't know what the result of the bailout will be, nor the outcome of the elections, and that uncertainty is really preventing us from rallying or from selling off," said Randy Frederick, director of trading and derivatives for Charles Schwab in Austin, Texas. "It has become very difficult to know how the market will react to anything."

An influential government adviser in China was quoted as saying the country's economic growth could fall below 7 percent in the second quarter if weak activity persists in June.

Investors have been looking to China's relatively robust expansion to pick up the slack from Europe, especially demand for commodities.

Reuters contributed to this report.

Antoine Drean, Triago, says the worst is still to come for Europe's economy, adding that Hollande could be dangerous for Europe and printing money may be the only solution.

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