UKX FTSE 100 Index

By Mike Bird 

Major indexes fell Tuesday, weighed by a decline in shares of banks and health-care companies.

The Dow Jones Industrial Average lost 102 points, or 0.5%, to 20535 shortly after the opening bell. The S&P 500 fell 0.3% and the Nasdaq Composite lost 0.3%.

Stocks have faltered in recent weeks as a pickup in political uncertainty in both the U.S. and elsewhere drove investors into haven assets like gold and U.S. Treasurys.

About 16% of S&P 500 companies are expected to report earnings this week, according to Bank of America Merrill Lynch, including several banks and industrial companies. Continued signs of corporate health will be key to stocks moving higher, analysts say.

Shares of Goldman Sachs Group fell 3.4% after the company's first-quarter trading results fell short of those posted by its rivals.

Bank of America shares jumped 1.4% after the company reported a higher first-quarter profit, and revenue that beat analysts' expectations.

Meanwhile, volatility returned to currency markets as British Prime Minister Theresa May called a surprise general election.

The Stoxx Europe 600 index fell by 0.8% shortly after midday in London, led by a 1.7% drop in the U.K.'s FTSE 100 and a 1.2% drop in France's CAC 40.

The pound initially fell sharply against the dollar and euro on the news that the prime minster would make an unexpected statement at 11:15 a.m. London time, down to as low as EUR1.175 to $1.252.

But after Mrs. May announced that a surprise election would be held on June 8, sterling jumped higher, rising 0.86% to $1.267, its highest since early February, and 0.47% to EUR1.186.

Yields on the U.K's 10-year government bonds also tumbled ahead of the statement, reaching 1% for the first time since October, rising back to 1.055% shortly after noon in London.

"It seems like people are focusing on the positives. The straightforward assumption is that she'll win the election and consolidate her control over parliament," said Viraj Patel, foreign exchange strategist at ING.

"But this also opens up a big new element of uncertainty, which could reinforce the case for sterling weakness," he added.

The British government began its formal process of leaving the European Union at the end of March. Polling currently suggests that Mrs. May's Conservative Party will be returned to government.

British bank stocks led the declines, with Barclays and Royal Bank of Scotland down 3.2% and 2.4%, respectively. Most of the fall came before Mrs. May's statement.

A stronger pound is typically bad for the U.K's flagship equity market, since the companies on the FTSE 100 make much of their revenue abroad, and a stronger pound shrinks sterling-denominated earnings.

Political tremors elsewhere in Europe also reached foreign-exchange markets.

The first round of the French election will be held Sunday. Two candidates go forward into the second round on May 7 and the race has become a four-way split since the rise of left-wing firebrand Jean-Luc Mélenchon.

"It's nervousness as opposed to concern," said Kit Juckes, global head of foreign-exchange strategy at Société Générale SA. "You have four candidates within 5% of each other, so nervousness would be a sensible reaction."

The nerves stem from the possibility that either Mr. Mélenchon or far-right candidate Marine Le Pen, who has promised a referendum on France's membership of the European Union, could outperform and emerge victorious after the second round.

The euro was up 0.4% against the U.S. dollar at $1.068, but stress relating to the French election was clear in other parts of the currency market.

One month euro-dollar risk reversals, which measure the cost to investors of protecting against a sudden decline in the euro, touched minus 4.3, the most extreme reading since at least 2011. More negative numbers suggest investors are paying increasing amounts to hedge against a currency decline.

"The polls still look too close for comfort," said Emily Nicol, economist at Daiwa Capital Markets. "For example, one Ifop poll published Tuesday puts Macron and Le Pen each on 23%, just 3 percentage points ahead of Fillon and the far-left Mélenchon."

The dollar was lower against a basket of other international currencies, with The Wall Street Journal Dollar Index falling 0.19%.

The spread between French and German 10-year government bond yields -- another indicator of market worries -- ranged from 0.767 percentage point as markets opened to 0.711 percentage point. Late in 2016, before the French election loomed, the spread was as little as 0.22 percentage point.

In Asia, the Shanghai Composite Index closed down 0.79% after dropping in late trading. The index fell by 1.6% across Friday and Monday, in its largest two-session drop since December.

Steel and iron-ore futures -- which hit four-year highs in March -- fell sharply in China, where iron-ore imports and steel production have outpaced physical demand and where the government is trying to cool a housing bubble. Iron ore futures have dropped by around a third in price since mid-March.

In Hong Kong, the Hang Seng also closed down, by 1.39%.

--Kenan Machado contributed to this article.

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

April 18, 2017 09:56 ET (13:56 GMT)

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