Wall St falls on US housing, IMF warning

Specialist Jason Hardzewicz, left, and trader Michael Zicchinolfi work on the floor of the New York Stock Exchange. File photo / AP

Wall Street fell overnight, erasing earlier gains, amid signs of weakness in the US housing industry and a warning from the International Monetary Fund about the risks to the pace of the global economic recovery.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.24 per cent, the Standard & Poor's 500 Index shed 0.26 per cent, while the Nasdaq Composite Index dropped 0.50 per cent. Declines in shares of Home Depot, last down 1.3 per cent, and those of Wal-Mart, last 1 per cent weaker, led the Dow lower.

Housing starts in the US were disappointing, dropping more than expected in January, sliding 16 per cent to a seasonally adjusted annual rate of 880,000 units. It was the largest drop in almost three years.

What's worse, some interpret the data as showing underlying weakness that is caused by something other than the colder-than-usual winter weather. Permits to build homes slid 5.4 per cent last month to a 937,000-unit pace.

"The housing sector already slowed down in the fourth quarter and it's not picking up," Thomas Costerg, a US economist at Standard Chartered Bank in New York, told Reuters. "There is more than the weather at play and the underlying dynamics are not as favourable as people thought they were."

Meanwhile, "significant downside risks remain" when it comes to the global economic recovery, the International Monetary Fund said. Still, it kept its forecast for global growth at 3.75 per cent this year and 4.0 per cent in 2015.

"Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern and a persistent tightening of financial conditions could undercut investment and growth in some countries given corporate vulnerabilities," the IMF said in a note prepared for meetings of G20 finance ministers and central bank governors in Sydney this week.

Indeed, Ukraine stocks, bonds, and the hryvnia all sank amid intensifying conflict in the country between the government and protesters.

"The situation in Ukraine is affecting emerging-market currencies," Stewart Richardson chief investment officer at RMG Wealth Management in London, told Bloomberg News. "We could see a potential spillover from emerging markets into developed equities if things get worse in eastern Europe."

The US Federal Reserve is scheduled to the minutes from its January 28-29 meeting later today.

In more optimistic news, there was more merger and acquisition activity that pleased investors. Shares of Signet Jewelers, which owns Kay Jewelers, jumped 12.7 per cent after it said it would buy Zale for US$21 per share in cash. Shares of Zale soared 40.1 per cent to US$20.89.

In Europe, the Stoxx 600 Index finished the session with a 0.1 per cent increase from the previous close. Germany's DAX and the UK's FTSE 100 both ended the day with gains of less than 0.1 per cent, while France's CAC 40 added 0.2 per cent.