* Moody's Investors Service likely to downgrade Portugal
* Euro leaders warn of spreading crisis
* Economically sensitive stocks sell off
* Dow down 0.6 pct, S&P down 0.7 pct, Nasdaq down 0.9 pct
* For up-to-the-minute market news see []
(Updates to close)
By Edward Krudy
NEW YORK, May 5 (Reuters) - U.S. stocks sagged on Wednesday
as more signs emerged that the fallout from the Greek debt
crisis could spread to bigger European economies.
The euro hit a 14-month low as investors shunned the debt
of weaker euro zone countries and jumped into safe-havens. U.S.
Treasury prices and the dollar surged on fears Greece's debt
problems could hinder global growth.
On Wall Street, resource and industrial stocks, sensitive
to the outlook of global economic growth, weighed on the
market. Energy shares were also pressured as the price of oil
fell nearly $3 to $79.97 a barrel. Trading volume was among the
highest this year.
"The focus right now is primarily on how this is going to
play out in Europe, how much damage is going to be done," said
Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co, in
San Francisco.
European leaders warned the debt crisis could spread beyond
Greece, and Moody's Investors Service said Portugal could be
next to have its debt downgraded, stoking fears that a
"contagion" effect could cause complicated international debt
arrangements to topple like dominoes.
German Chancellor Angela Merkel gave a stark warning of
what was at stake. "There is no alternative to the aid to be
agreed for Greece if we want to secure the financial stability
of the euro area," she told lawmakers in Berlin.
The cost to insure the debt of Germany and France hit their
highest levels in more than a year on Wednesday, as weakness
spread through credit markets on concern about widening fiscal
challenges for peripheral European nations.
The Dow Jones industrial average <> dropped 59.94
points, or 0.55 percent, to 10,866.83. The Standard & Poor's
500 Index <.SPX> fell 7.71 points, or 0.66 percent, to
1,165.89. The Nasdaq Composite Index <> lost 21.96 points,
or 0.91 percent, to 2,402.29.
The S&P Energy Index <.GSPE> fell 1.5 percent and Chevron
Corp <CVX.N> shares eased 0.7 percent to $80.19.
Volume in options contracts to sell the SPDR S&P 500
<SPY.P> and the tech-heavy PowerShares QQQ <QQQQ.P>,
exchange-traded funds that track underlying equities, was again
active in a sign investors were seeking to insure their
portfolios against losses.
"What we are also starting to see is that investors are
rolling out of their May put positions, which had been
profitable, to the June contract," said TD Ameritrade
derivatives strategist Joe Kinahan.
TRADING OPPORTUNITIES?
Wall Street's losses were more modest than Tuesday's more
than 2 percent decline. Losses were also were more muted than
those in Europe, where the pan-European FTSEurofirst 300 shed 1
percent on Wednesday.
Michael James, senior trader at regional investment bank
Wedbush Morgan in Los Angeles, said traders were looking for
buying opportunities generated by the volatility.
"Bigger picture, U.S. investors continue to be of the
opinion that corrections are to be bought," said James.
Big-cap consumer staples names were among the winners on
the Dow, including retailer Wal-Mart Stores Inc <WMT.N>, up
1.4 percent at $54.77 as it rose for a second straight day, and
Coca-Cola Co <KO.N>, up 0.9 percent to $53.66.
Protests in Greece against the government's planned
austerity plan turned violent, underscoring the difficulty
faced by cash-strapped governments trying to force spending
cuts.
Protesters clashed with police as tens of thousands of
strikers marched. Three people died when rioters set a central
Athens bank ablaze.
The flight from risky assets pushed up the U.S. dollar,
considered a safe-haven investment, and the greenback gained 1
percent against a basket of major currencies <.DXY>.
Generally positive data on the U.S. private sector job
market and the economy's services sector cushioned the negative
tone.
The Institute for Supply Management said the pace of growth
in the U.S. services sector, which accounts for some two-thirds
of U.S. economic activity, was unchanged in April compared with
March, while a separate report showed the U.S. private labor
sector added 32,000 jobs in April. []
About 12.22 billion shares traded on the New York Stock
Exchange, the American Stock Exchange and Nasdaq, more than
last year's estimated daily average of 9.65 billion and the
fourth highest this year.
Declining stocks outnumbered advancing ones on the NYSE by
a ratio of about 4 to 1, while on the Nasdaq, about three
stocks fell for every one that rose.
(Additional reporting by Doris Frankel; Editing by Leslie
Adler)
