Dow drops after yuan enthusiasm fades

NEW YORK (AP) — Stocks erased big gains Monday after investors lost some of their enthusiasm about China’s decision to let its currency appreciate against the dollar.

According to preliminary calculations, the Dow fell 8.23. or 0.1 percent, to 10,442.41. The index had risen 5.2 percent in the last two weeks, its biggest two-week gain since mid November 2009.

The S&P 500 index fell 4.31‘, or 0.4 percent, to 1,113.20. and the Nasdaq fell 20.71, or 0.9 percent, to 2,299.09.

The Dow Jones industrial average fell about eight points after climbing nearly 144 in early trading. The Dow had been up the past four days. The Standard & Poor’s 500 index also slid and the Nasdaq composite index fell after seven straight gains.

The initial reaction to China’s weekend announcement was that a stronger yuan compared with the dollar would allow US manufacturers and exporters to be more competitive selling their products in China. But traders came to see the move as more of a long-term shift rather than something that would give the economy a boost now.

A drop in the euro also eroded investors’ excitement over China’s move. A slide in the European currency is seen as a sign of faltering confidence in Europe’s ability to contain its debt problems.

Many of China’s trading partners complain that the country keeps the yuan artificially low to bolster exports. At the same time, the weak currency makes imported goods expensive for consumers in China.

Subodh Kumar, an independent investment strategist in Toronto, said some traders at first mistakenly expected to see a lower yuan make demand from China jump the way it did in 2008 when the country enacted a massive economic stimulus plan.

“The notion is that they’re going to get the same kick out of China that they did in 2008,” Kumar said. “Most of China’s moves are long-term.”

But materials companies rose on expectations that demand from China will increase. Aluminum producer Alcoa Inc. gained 5.5 percent, while mining company Cliffs Natural Resources Inc. rose three percent.

The news from China hurt retailers because inexpensive imports from China would become more expensive. That could cut into earnings. Macy’s Inc. fell 3.4 percent, while Wal-Mart Stores Inc. dropped 1 percent.