Cyprus uncertainty offsets good housing-market news
The latest twists in Europe’s debt drama weighed down the stock market Tuesday, offsetting more good news on the U.S. housing market.
The Dow Jones industrial average managed a gain of just under 4 points, and other indexes closed slightly lower. Investors were focused on Cyprus, where the Mediterranean country’s lawmakers voted against a proposed bailout plan for banks that would have called for raiding the savings accounts of ordinary citizens, setting a new precedent in Europe’s ongoing debt crisis.
The plan was rejected — with zero votes in favor — even after being changed to lessen the burden on savers with lower balances. The vote leaves Cyprus’ bailout from international lenders in question, and without external funds, the country’s banks could face collapse and the government could wind up having to leave Europe’s joint currency.
Many investors are betting the worst-case scenarios won’t come to pass, however, especially since Europe’s powerful central banker, European Central Bank President Mario Draghi, has vowed to take any steps necessary to preserve the 17-nation currency union.
“The concern in the market is that they could default or they could be forced out of the eurozone, and that would create a precedent,” said Alec Young, a global equity strategist with S&P Capital IQ. “The selling, though, is fairly contained, and that tells you most people think there will be some kind of compromise reached.”
The Dow and other U.S. indexes started higher after a report of a surprisingly large increase in new home construction in February. The index gained as much as 62 points in morning trading.
It turned lower at midday as Cyprus’ parliament began debating the contentious plan demanded by the country’s lenders to seize as much as 10 percent of the funds in savings accounts. The market steadied in the afternoon after the vote occurred and a move to delay it was turned down.