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The Dow industrials lost more then 300 points in a sell-off on Wednesday that drove all major US stock indexes down over 2 per cent in the wake of the presidential election as the looming "fiscal cliff" debate and Europe's economic troubles returned to the forefront.

The Standard & Poor's 500 Index posted its biggest daily percentage drop since June, with all 10 S&P sectors solidly lower and about 80 per cent of stocks on both the New York Stock Exchange and the Nasdaq ending in negative territory. Both the Dow and the S&P 500 closed at their lowest levels since early August.

Financial stocks and energy shares, two sectors that could face increased regulation after President Barack Obama's re-election, were the weakest on the day. The S&P financial index lost 3.5 per cent, while the S&P energy index fell 3.1 per cent. An S&P index of technology shares slid 2.8 per cent as the stock of Apple Inc entered bear market territory.

Obama's victory had been anticipated, though many polls indicated a close race between the president and Mitt Romney, his Republican challenger, going into election day.

The election was considered a major source of uncertainty for the market, but now the focus turns to the fiscal cliff, with investors worrying that if no deal is reached over some $600 billion in spending cuts and tax increases due to kick in early next year, it could derail the economic recovery.

The Republican Party retained control of the US House of Representatives, while the Senate remained under Democratic control.

David Joy, chief market strategist at Ameriprise Financial in Boston, said this kind of divided government was disappointing "since that configuration has resulted in gridlock and there's no clear path towards unlocking that.

"It holds implications for how quickly we resolve the fiscal cliff issue, or whether it gets resolved at all," said Joy, who helps oversee $571 billion in assets.

The market's losses were broad, with pessimism exacerbated by overseas concerns after the European Commission said the region would barely grow next year, dashing hopes for improvement in the short term.

Still, some viewed the day's slide as a buying opportunity, saying it was unlikely that no deal would be reached on the fiscal cliff and arguing that Europe's troubles were already priced into markets.

"There's no question that Europe is lagging the rest of the developed and emerging world, but stocks will find a base soon, when investors start seeing through some of the smoke over the region and cliff," said Richard Weiss, who helps oversee about $120 billion in assets as a senior money manager at American Century Investments in Mountain View, California.

The Dow Jones industrial average slid 312.95 points, or 2.36 per cent, to 12,932.73 at the close. The Standard & Poor's 500 Index fell 33.86 points, or 2.37 per cent, to 1,394.53. The Nasdaq Composite Index lost 74.64 points, or 2.48 per cent, to close at 2,937.29.

The S&P 500 closed below the key 1,400 level for the first time since August 30, while the Dow ended under 13,000 for the first time since August 2.

About 7.81 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, slightly below last year's daily average of 7.84 billion, though Wednesday's volume did surpass that of many recent sessions.

Contributing to the Nasdaq's decline, Apple shares fell 3.8 per cent to $558, off more than 20 per cent from an all-time high reached earlier this year. That slump puts the stock of the world's most valuable publicly traded company in bear market territory.

The drop was a reversal from Tuesday's gains when voting was under way. Defense and energy shares were among the market leaders that day, causing speculation that some investors were betting on a Romney win.

On Wednesday, an index of defense shares fell 2.9 per cent, its biggest one-day drop in a year. Shares of United Technologies dropped 2.9 per cent to $77.68 while Lockheed Martin sank 3.9 per cent to $91.15.

Energy shares fell as investors bet that the industry may see increased regulation in Obama's second term, with less access to federal lands and water. Crude oil shed more than 4 per cent while an index of coal companies plunged 8.8 per cent. Coal firms Peabody Energy lost 9.6 per cent to $26.24 and Arch Coal sank 12.5 per cent to $7.58.

Among financials, JPMorgan Chase & Co fell 5.6 per cent to $40.46 and Goldman Sachs dropped 6.6 per cent to $117.98.

"The notion that you may have gotten a respite on the financial services side (with regulation) if Romney had been elected is obviously being unwound," said Mike Ryan, chief investment strategist at UBS Wealth Management Americas in New York.

Healthcare stocks were mixed as President Obama's re-election rules out the possibility of a wholesale repeal of his healthcare reform law, though questions remain as to what parts of the domestic policy will be implemented. The S&P health care index shed 1.9 per cent. In contrast, Tenet Healthcare was the S&P 500's biggest percentage gainer, up 9.6 per cent at $27.34.

In 2008, stocks also rallied on election day, but then fell by the largest margin on record for a day following the vote, with each of the three major US stock indexes posting losses ranging from 5 per cent to 5.5 per cent.

Copyright @ Thomson Reuters 2012

Story first published on: November 08, 2012 03:13 (IST)

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