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Stock market sinks as investors react to dismal news out of Spain

It hardly needed it, but the U.S. stock market Wednesday got another reminder of how its fortunes are inexorably tied to the European economy.

All three major U.S. stock indexes sank after a dismal report about bad loans on the books of Spanish banks. The day before, U.S. stocks had soared after Spain held a successful auction of 2-year bonds.

The results underscored how the stock market can whipsaw on even incremental news out of Europe, and it has done just that for the past couple of weeks. In the 12 trading days of the second quarter so far, the Dow has fallen by triple digits four times, with Europe as a notable factor. Twice, it has risen by that same proportion.

It's not just the news itself, which can vary from hopeful to horrific and back again in just a couple of days. It's that investors have been inconsistent in how they react, sometimes shrugging off what seems like significant developments and at other times seizing on what seems piecemeal.

It's a time when "one headline can get you to change your mind," said Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. "When you go from one day being concerned about Spain to the next day, 'Oh, they had a good auction,' that's a lack of conviction," meaning investors aren't sure what to think.

The Dow Jones industrial average fell 82.79 points to 13,032.75. That was a U-turn from Tuesday's gain of 194 points.

The euro fell and Treasury prices rose as nervous investors looked for safe places to store their money. The yield on the 10-year Treasury note fell back below 2 percent and was 1.98 percent in afternoon trading.

A flood of first-quarter earnings also influenced the market in temperamental ways. Of the S&P 500 companies to report earnings so far, 78 percent have recorded per-share earnings that beat analysts' estimates, according to FactSet senior earnings analyst John Butters. But that hasn't always been enough to lift their share prices. IBM and Intel beat estimates late Tuesday but fell the most in the Dow on Wednesday because investors were disappointed by flat revenue. St. Jude Medical and money manager BlackRock also beat estimates, but their stocks fell anyway.

The Standard & Poor's 500 fell 5.64 points to 1,385.14, and the Nasdaq composite index fell 11.37 points to 3,031.45. The declines come after a stellar first quarter, when the Dow and the S&P 500 both recorded their best openings to the year since 1998.

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