August 1st, 2012

Dow Jones Futures – U.S. stocks declined, reversing earlier gains, as the Federal Reserve’s pledge to provide additional support for the economy disappointed investors anticipating a more definitive sign of further monetary easing.

Knight Capital Corp. (KCG), one of the largest market makers of U.S. stocks, plunged 33 percent as it experienced technology issues with trading. MasterCard Inc. (MA), the second-biggest payments network, slumped 2.2 percent as sales missed analysts’ estimates. Comcast Corp. (CMCSA), the largest U.S. cable company, and Allstate Corp. (ALL), the biggest publicly traded U.S. home and auto insurer, rose at least 3 percent as earnings topped projections.

Fourteen stocks fell for every five rising on U.S. exchanges at 4 p.m. in New York. The Standard & Poor’s 500 Index slid 0.3 percent to 1,375.32. The Dow Jones Industrial Average dropped 32.55 points, or 0.3 percent, to 12,976.13. The Russell 2000 Index of small companies slumped 2 percent to 771.11, led by Knight. Volume for exchange-listed stocks in the U.S. was 7.4 billion shares, 10 percent above the three-month average.

“The Fed basically passed,” said Michael Strauss, who helps oversee about $26 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “They didn’t say anything new. The Fed is recognizing the economy is a bit weaker, but there’s not that much it can do.”

Equities fell a third day as Fed Chairman Ben S. Bernanke held off on stepping up record stimulus even as economic growth slowed. Before their next meeting starts Sept. 12, Bernanke and his colleagues will assess reports on unemployment in July and August, and the European Central Bank may take steps to ease Europe’s crisis at a meeting tomorrow.

Not ‘Expecting’

“I wasn’t expecting anything new from the Fed,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “It would be premature to do something ahead of any European action and the jobs report. They are watching closely, at some point they may step in, but they need more information. We’ll wait for the next chapter I guess.”

U.S. stocks rose earlier as data showing manufacturing weakness from China and Europe boosted speculation policy makers will act to support the economy. Manufacturing in the U.S. unexpectedly contracted for a second month in July, indicating a mainstay of the economy was struggling to improve.

Dozens of stocks swung 10 percent or more without accompanying news in the first minutes of trading, whipsawing investors. Knight Capital told some clients of its market-making unit that a “technical issue” was affecting its systems and advised them to route orders elsewhere.

Market Making

The company said the issue was confined to its market- making unit, which helps execute billions of dollars in equity transactions every day. The errors were caused by a malfunction in a so-called trading algorithm, according to a person at the company who asked to remain anonymous. The New York Stock Exchange canceled transactions in six securities that occurred during a period of heightened volatility after the open.

The volatility, occurring after three Dow stocks fluctuated in regular hourly patterns for a full trading day on July 19, may embolden critics of American market structure who say the computers that dominate trading have become too complex to control. Special curbs adopted after the May 2010 equity crash helped calm today’s fluctuations.

Goodyear Tire & Rubber Co. (GT) rose more than 10 percent just after the 9:30 a.m. open in New York. Manitowoc Co. (MTW) gained 14 percent, Pandora Media Inc. climbed almost 11 percent and Level 3 Communications Inc. (LVLT) plunged 15 percent before the swings narrowed minutes later, according to data compiled by Bloomberg.

‘Human Error’

“All of a sudden, there was choppy trading and some stocks were halted,” Arthur Hogan, a strategist at Lazard Capital Markets LLC, said in a telephone interview. “People were scratching their heads, but it wasn’t a sense of panic. It was more curious. There’s got to be some human error here.”

NYSE Euronext said it will review trading in 140 securities, including Bank of America Corp., Caterpillar Inc. and Pfizer Inc. It canceled trades in six securities where prices swung at least 30 percent in the first 45 minutes.

Knight Capital shares dropped 33 percent to $6.94.

Investors also watched corporate results today. About 72 percent of the S&P 500 companies which reported second-quarter earnings beat estimates, data compiled by Bloomberg showed, even as 59 percent missed analysts’ sales forecasts.

MasterCard lost 2.2 percent to $427.20. The company is among global corporations whose earnings have been hit by currency fluctuations against the dollar. Chief Executive Officer Ajay Banga is pushing the company into emerging markets and gets about 60 percent of revenue from outside the U.S., more than larger rival Visa Inc.’s 45 percent.

Sales Slump

Avon Products Inc. (AVP) fell 1.2 percent to $15.30. The door-to- door cosmetics seller that rebuffed a takeover offer from Coty Inc. this year reported a 70 percent decline in second-quarter profit amid a sales slump in Europe and China.

Genworth Financial Inc. (GNW) dropped 11 percent, the most in the S&P 500, to $4.48 after acting Chief Executive Officer Martin Klein listed potential obstacles to separating the U.S. mortgage-insurance unit from the company.

Facebook Inc. (FB) slumped 3.8 percent to a record low of $20.88. The shares are 45 percent below their initial public offering price of $38. The world’s largest social-networking service last week reported results that showed slowing growth.

Car companies had the biggest decline in the S&P 500 among 24 industries, falling 2 percent. Harley-Davidson Inc. (HOG) retreated 3.6 percent to $41.67. The biggest U.S. motorcycle maker reported second-quarter revenue trailed analysts’ estimates and said currency exchange rates will hurt profit margins.

‘Madagascar 3’

DreamWorks Animation SKG Inc. (DWA) plunged 6.3 percent to $17.99. The independent film studio fell after second-quarter results missed analysts’ estimates on lower-than-expected results related to “Madagascar 3.”

Career Education Corp. (CECO) tumbled 22 percent to $3.69. The for-profit college chain with more than 90 campuses fell a day after reporting a second-quarter loss and disclosing a regulatory investigation.

Take-Two Interactive Software Inc. (TTWO) slid 10 percent to $7.87. The publisher of the “Grand Theft Auto” video games reported first-quarter results and a full-year outlook that fell below analysts’ estimates.

Comcast added 3.1 percent to $33.55. The company improved its video guide, boosted Internet speeds and added phone features to fight competition from online video companies, satellite-television providers and Verizon Communications Inc.’s FiOS and AT&T Inc.’s U-verse. Comcast has curbed video losses for the seventh consecutive quarter on a year-over-year basis.

Rate Increases

Allstate added 6.1 percent to $36.40. Chief Executive Officer Tom Wilson has been seeking rate increases and changing terms of policies to boost profitability as severe weather increases claims costs and low interest rates put pressure on investment income from the company’s bond portfolio.

Some casino companies gained as Macau gaming revenue rose 1.5 percent in July, beating estimates from some analysts who predicted a little changed or lower result on declining demand from mainland Chinese gamblers and the impact of a Hong Kong typhoon. Wynn Resorts Ltd. (WYNN) rose 1.7 percent to $95.30. Las Vegas Sands Corp. (LVS) advanced 2.3 percent to $37.26.

Laboratory Corp. of America Holdings rallied 4.5 percent to $87.90. The company may be the target of a private equity buyout, Reuters reported, citing Mergermarket, a provider of news and data on acquisitions.

Phillips 66 (PSX) gained 1.8 percent to $38.27. The company, which became the largest U.S. independent refiner after its spinoff from ConocoPhillips earlier this year, said second- quarter profit rose 13 percent on higher fuel margins and announced a plan to buy back shares valued at $1 billion.

Hyatt Hotels Corp. (H) jumped 3.5 percent to $36.79. The chain controlled by the Pritzker family said second-quarter earnings climbed 5.4 percent amid strong demand in major U.S. cities.

- Rita Nazareth in New York at Bloomberg.