US STOCKS-Wall Street falls on fiscal cliff setback

Gabriel Debenedetti
Reuters Middle East

* Confidence drops after failure of Boehner bill

* Herbalife shares skid, down for 8th straight day

* Banking shares slide; Citigroup and BofA shares sink

* Stocks fall: Dow 0.91 pct, S&P 500 0.94 pct, Nasdaq 0.96


NEW YORK, Dec 21 (Reuters) - U.S. stocks finished lower on

Friday after a Republican plan to avoid the "fiscal cliff"

failed to gain sufficient support on Thursday night, draining

hopes that a deal would be reached before 2013.

Still, stocks managed to rebound from the day's lows near

the end of the session, and for the week, major averages still

ended higher, with the S&P 500 gaining 1.2 percent.

Trading was volatile as confidence eroded in the prospect of

a deal out of Washington, and in part due to quarterly

expiration of options and futures contracts. The CBOE Volatility

Index or VIX, the market's favored anxiety measure,

finished below its high of the day.

Republican House Speaker John Boehner failed to garner

enough votes from even his own party to pass his "Plan B" tax

bill late on Thursday. It was the latest setback in negotiations

to avoid $600 billion in tax hikes and spending cuts that some

say could tip the U.S. economy into recession.

"The failure with Plan B was disappointing, if not terribly

surprising, but now there's a real lack of clarity about what

will happen, and markets hate that," said Mike Hennessy,

managing director of investments for Morgan Creek in Chapel

Hill, North Carolina.

Herbalife dropped for an eighth straight session.

Investor Bill Ackman recently ramped up his campaign against the

company. The company skidded 19 percent to $27.27 and has lost

more than 35 percent this week.

Plan B, which called for tax increases on those who earn $1

million or more a year, was not going to pass the Democratic-led

Senate or win acceptance from the White House anyway. But it

exposed the reality that it will be difficult to get Republican

support for the more expansive tax increases that President

Barack Obama has urged.

Still, the declines of less than 1 percent in the three

major U.S. stock indexes suggest that investors do not believe

the economy will be unduly damaged by the absence of a deal,

said Mark Lehmann, president of JMP Securities, in San


"You could have easily woken up today and seen the market

down 300 or 400 points, and everyone would have said, 'That's

telling you this is really dire,'" Lehmann said.

"I think if you get into mid-January and (the talks) keep

going like this, you get worried, but I don't think we're going

to get there."

Banking shares, which outperform during economic expansion

and have led the market on signs of progress on resolving the

fiscal impasse, led declines. Citigroup Inc fell 1.6

percent to $39.49, while Bank of America slid 1.9

percent to $11.29. The KBW Banks index lost 1.19 percent.

Volatility on Friday was exacerbated in part by "quadruple

witching," the quarterly expiration of stock index futures and

options, stock options and single stock futures contracts.

About 8.59 billion shares changed hands on major U.S.

exchanges, more than the daily average of 6.47 billion daily in

2012, in part due to expiration.

The Dow Jones industrial average dropped 120.72

points, or 0.91 percent, to 13,191.00. The Standard & Poor's 500

Index fell 13.52 points, or 0.94 percent, to 1,430.17.

The Nasdaq Composite Index lost 29.38 points, or 0.96

percent, to 3,021.01.

"Amazingly, this sharp decline today may not actually change

the technical picture much - unless the decline gets worse,"

said Larry McMillan, president of options research firm McMillan

Analysis Corp, in a research note.

The day's round of data indicated the economy was

surprisingly resilient in November; consumer spending rose by

the most in three years and a gauge of business investment


But separate data showed consumer sentiment slumped in

December. The S&P Retail Index fell 1.2 percent.

U.S.-listed shares of Research in Motion sank 22.7

percent to $10.91 after the Canadian company, known as the

BlackBerry maker, reported its first-ever decline in its

subscriber numbers on Thursday alongside a new fee structure for

its high-margin services segment.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes