by Liu Fan, Jiang Hanlu
NEW YORK, March 19 (Xinhua) -- U.S. stocks plunged on Monday, as the Cypriot government's plan to impose one-off taxes on bank deposits in order to get eurozone bailout stoked fear for a flare-up of eurozone debt crisis.
But the three major stock indices recouped roughly half of their early losses when investors got more time to digest the news.
"I think the Cyprus news will just be a minor blip (to the U.S. market)," Keith Bliss, senior vice president and director of sales and marketing at Cuttone & Company, told Xinhua.
"Time will tell on that. But right now it's not having a major impact," he said.
HOW BIG AN IMPACT?
The Cypriot government maintained that the levy aimed at generating 5.8 billion euros (7.5 billion U.S. dollars) for recapitalization of Cypriot banks will be one-off, but "the initial news of the Cyprus bailout sent markets sharply lower mainly based on the fear of this spreading to other euro nations and bringing back to the forefront concern over the eurozone debt crisis," Gregory J. Keating, managing director of New York-based James E. Coffey Securities Inc, told Xinhua.
Shortly after the opening bell, the Dow slumped almost 110 points, or 0.8 percent, to an intraday low of 14,404.21 from its previous close. Meanwhile, the S&P 500 dipped 1.0 percent and the Nasdaq sank 1.2 percent. But the market has gone from minus triple digit to almost flat on the day. And the three major stocks close around 0.4 percent lower from the previous close.
"The U.S. markets are lower but not nearly as lower because I believe there is a growing sense that there will be a revised bailout leading to more favorable results in Cyprus," Keating noted.
Echoing Keating's view, Bliss believed, "as the story progresses, if there would not be a capital flight from the Cyprus banks and if the recapitalization of the Cyprus banks took shape without much disruption, then it will have no impact on the U.S. markets at that point of time."
Another reason for Monday's fall is that investors need an excuse to sell off and take profit after the U.S. equity market's bullish run since the start of this year, especially after the Dow's record-breaking run last week in a 10-day winning streak, its longest consecutive winning streak since 1996.
"The market was destined for a pullback and I think investors see this news as a time to take some bets off the table," Keating said.
Year to date, the Dow was up 10.3 percent, the S&P 500 up 8.8 percent and the Nasdaq up 7.2 percent.
Kenneth Polcari, director of NYSE Floor Operations at O'Neil Securities, pointed out that the U.S. equity market gained some support on expectation of the minutes of the Federal Open Market Committee's March policy meeting scheduled for Tuesday and Wednesday.
"Especially in light of what's happening in Cyprus, the expectation is that Bernanke is going to continue to offer up his support. The Fed's are going anywhere trying to calm and stabilize the markets," Polcari said.
UNDERLYING RISKS OF CYPRUS CRISIS
Despite being a "minor blip" to Wall Street at the moment, the Cyprus crisis and the protracted eurozone debt crisis as a whole pose underlying risks for the U.S. and global markets in a number of ways.
The Cyprus crisis is "more than just the headlines" that depositors are going to be hit with the taxes, Bliss said.
The No. 1 risk is bank runs after Cyprus' banking holiday on Thursday. "People would try to avoid the deposits tax by pulling their money out of the bank. Then you've got a real problem on your hands. The banks have no money at that point," Bliss said.
The follow-on risks of a capital flight in Cyprus could trigger off a domino effect in the debt-ridden area, Bliss said, "When depositors all across Europe saw that being done in Cyprus, what's the chance that being done in Greece, in Spain, in Portugal, in Ireland and other countries that as we know are struggling?"
Polcari warned that the potential for the Cyprus crisis to be disruptive to the global market, including the U.S. market, is still very, very real.
The Cyprus government has put off a vote until Thursday as they try to renegotiate new terms to levy on bank accounts. But for now, "it's still up in the air. The European debt crisis issue will continue to simmer on the surface," said Polcari.
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