NEW YORK - Stocks dropped suddenly Tuesday after Thailand's military launched a coup against the country's prime minister. While they recovered most of their losses in late afternoon, major indexes all closed lower.
Traders watching Thailand closely are certain to remember how trouble in the kingdom had worldwide implications in the past: The Asia currency crisis that erupted in 1997 began with the devaluation of the Thai baht, then snowballed into a currency crisis in emerging markets around the world.
The baht fell sharply Tuesday, as did Brazil's real, which also tumbled in the '97 crisis.
Thailand, usually one of Southeast Asia's most stable countries, has been in a state of political flux this year after massive rallies forced Prime Minister Thaksin Shinawatra to dissolve Parliament. Thaksin, who was in New York attending the United Nations General Assembly, has faced calls to step down amid allegations of corruption and abuse of power.
The news hit the market on a day stocks had been drifting lower following a sharp drop in the pace of U.S. housing starts in August. Housing starts fell 6 percent, twice as fast as expected. New housing construction notched its fifth decline in six months, hitting its lowest point in more than three years.
Stocks are coming off a strong summer rally, poised near old record highs. "Now we're at the top of the mountain saying, 'Ew. Is this as nice an environment as we thought?'," said Jon Brorson, head of growth equities at Neuberger Berman in Chicago.
According to preliminary calculations, the Dow Jones industrial average fell 14.09, or 0.12 percent, to 11,540.91.
Broader stock indicators were also lower. The Standard & Poor's 500 index dropped 2.87, or 0.22, to 1,318.31, and the Nasdaq composite index fell 13.38, or 0.60 percent, to 2,222.37. The index was hurt by a 11 percent drop in Yahoo Inc. and what investors call "the flight to quality," a tendency to sell riskier tech stocks heavily during political crises.
Bonds, considered a relative safe haven, surged as stocks fell, with the yield on the 10-year Treasury note at 4.73 percent, down from 4.81 percent Monday. The U.S. dollar dropped against most other major currencies. Gold prices fell.
Crude oil futures plummeted after OPEC played down the likelihood of a production cut. A barrel of light crude settled at $61.66, down $2.14, in trading on the New York Mercantile Exchange.
Stocks dropped due to a confluence of events, said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati.
The day's housing data overshadowed the Labor Department's report that core inflation, which excludes food and energy, fell for the second straight month. Both the housing and the inflation data reaffirm the consensus on Wall Street that the Federal Reserve will not raise the nation's benchmark short-term interest rate above its current level of 5.25 percent when it meets Wednesday.
Investors would have embraced those dipping inflation numbers a few months ago. But now the fear is that the economy is treading on the edge of a recession and could be pushed over by either something long brewing, like the housing slowdown, or something sudden, like a hedge fund meltdown or another currency crisis.
News that hedge fund Amaranth Advisors lost $5 billion last week on natural gas trades, halving its assets under management from $9 billion to $4.5 billion, sobered traders, some of whom have been watching the large, and largely unregulated, hedge fund business for signs of an implosion that could have market-wide implications.
The fact that the entire Internet sector sagged after Yahoo said its third quarter results would be hurt by an advertising slowdown shows investors' fears that Yahoo's problems might be industry-wide, said Jonathan Armitage, head of U.S. large-cap stocks for Schroders Investment Management.
"It's just an opportune time for the market to kind of sell off," Johnson said.
In company news, Yahoo fell $3.25 to $25.75.
Napster Inc. rose 46 cents, or nearly 13 percent, to $4.01 after the company, which sells music digitally to 500,000 subscribers, said late Monday it hired UBS Investment Bank to "examine potential combinations," including a sale of the company. Analysts say companies like Amazon.com Inc., RealNetworks Inc. and a variety of cell phone and mp3 player manufacturers may be interested.
Ford Motor Co. fell 16 cents to $7.66 after the company said it will pay board member John Bond $25,000 a day to be a consultant to Chairman William Clay Ford Jr. as the auto maker goes through a massive restructuring. Bond's total fees under the consulting deal are capped at $262,500 every 12 months, according to a Ford filing with the Securities and Exchange Commission.
MetLife Inc. dropped 20 cents to $55.38 after the National Association of Securities Dealers said it imposed a $5 million fine against three company units for providing inaccurate and misleading information to NASD, allowing late trading of mutual funds, failing to produce e-mails in a timely fashion and other conduct that violates NASD's rules.
Declining issues outnumbered advancers by roughly 9 to 7 on the New York Stock Exchange, where volume was 1.15 billion shares, roughly even with Monday's volume.
The Russell 2000 index of smaller companies was down 3.39, or 0.47 percent, at 725.45.
Overseas, Japan's Nikkei stock average rose 0.05 percent. Britain's FTSE 100 dropped 0.99 percent, Germany's DAX index was down 0.89 percent, and France's CAC-40 fell 0.60 percent.