Alcoa, China news hits Dow

NEW YORK - Investors are suffering another bout of pessimism about the strength of the global economic recovery.

Stocks fell sharply yesterday, sending the Standard & Poor's 500 index down nearly 1 percent. Demand for the safety of Treasurys sent bond prices higher and interest rates lower, tightening the market barometer known as the yield curve.

A disappointing profit report from Alcoa Inc. and moves by China to curtail growth raised questions about whether a 10-month surge in stocks could be sustained. Financial stocks slid on concerns that the government would impose taxes on bailed-out banks.

Alcoa slid 11 percent after its earnings and revenue fell short of expectations. The aluminum producer is usually the first big U.S. company to report quarterly results, and investors look to its numbers for an early read on overall corporate earnings.

Alcoa's report, which blamed weakness in aerospace, construction and gas turbines for the miss, weighed on energy and industrial stocks. The slide comes after Chevron Corp. warned late Monday that it expected thin profit margins would hurt its earnings.

Concerns about the prospects for Alcoa and other companies that produce raw materials rose after China again tightened its monetary policy and raised the amount of money that banks must hold in reserve. The moves are aimed at keeping growth in the country from charging ahead too fast, but it could also slow the recovery in other countries and hurt companies that sell resources to the world's most populous nation.

The Dow Jones industrial average fell 36.73, or 0.3 percent, to 10,627.26. The S&P 500 index fell 10.76, or 0.9 percent, to 1,136.22, after advancing for the first six days of the year for the first time since 1987. The Nasdaq composite index fell 30.10, or 1.3 percent, to 2,282.31.

Investors found other reasons to be cautious. Video game publisher Electronic Arts Inc. said it did not see a rebound in sales during the most recent quarter. It slashed its full-year earnings forecast after the market closed Monday, saying weakness in game sales didn't ease during the holidays.

Alcoa fell $1.93, or 11.1 percent, to $15.52, posting the biggest drop among the 30 stocks that make up the Dow industrials. Electronic Arts slid $1.42, or 7.8 percent, to $16.85.

Chevron fell 47 cents, or 0.6 percent, to $80.41. Caterpillar Inc., the maker construction and mining equipment, fell $1.89, or 3 percent, to $62.24 after gaining 6.3 percent Monday.

Among financials, Bank of America Corp. fell 57 cents, or 3.4 percent, to $16.36. Regulators filed suit against the company, contending that the bank didn't disclose big losses at Merrill Lynch before shareholders voted to combine the companies at the height of the financial crisis in September 2008.