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Stocks reverse course Add to ...

For the second time this week, an early stock market rally has disappeared in afternoon trading, suggesting that investors have been too quick to react to upbeat developments regarding the European debt crisis.

Stocks surged in early trading on Thursday, with all 30 stocks within the Dow Jones industrial average showing gains -- a continuation of a common trend in recent weeks, where investors have been either all-in or all-out of stocks. However, with about an hour left in the trading day, just 11 Dow members were holding onto gains, as the blue-chip index slid into negative territory.

The Dow was recently spotted at 10,979, down 32 points or 0.3 per cent, a downturn of more than 290 points from its intraday high. Similarly, the S&P 500 has fallen to 1141, down 10 points or 0.9 per cent. In Canada, the S&P/TSX composite index was at 11,560, down 26 points or 0.2 per cent.

Economically sensitive stocks bore the brunt of the reversal, revealing a lack of conviction that Europe will be able to solve its debt crisis even as observers welcomed news that Germany had approved plans to raise the euro-zone's bailout fund. The reversal also comes amid some upbeat news on the U.S. economy: The U.S. Labor Department reported a drop in weekly jobless claims and the Commerce Department reported that U.S. economy expanded by 1.3 per cent in the second quarter, above an earlier estimate.

Among key Dow components, American Express Co. fell 2.1 per cent, Intel Corp. fell 1.9 per cent and Caterpillar Inc. fell 2.5 per cent. Elsewhere, Netflix Inc. fell 13 per cent and Tiffany & Co. fell 9.2 per cent.

In Canada, Talisman Energy fell 3 per cent, Research In Motion Ltd. fell 4.7 per cent and Potash Corp. of Saskatchewan fell 1.1 per cent. However, financials held up, with Royal Bank of Canada up 0.7 per cent and Manulife Financial up 2.8 per cent.

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