MarketView for March 19

Summary

The S&P 500 fell for a third day on Tuesday but pared losses late in the day after the parliament of Cyprus rejected a proposed tax on bank deposits. The proposed tax on savings in banks had been a condition of a European bailout. When the Cypriot parliament rejected the tax, the decision eased worries that savers will begin withdrawing funds. At the same time, it left efforts to rescue the country - the latest casualty of the euro-zone debt crisis - up in the air. Banks in Cyprus will remain closed until Thursday.

The S&P 500's retreat followed a long streak of gains where the index came close to hitting its all-time closing high set in 2007. The S&P 500 is still on track to post its best quarter in a year. The benchmark S&P 500 is up 8.4 percent for the year, while the Dow is up 10.3 percent.

Energy shares led the day's decline following a drop in oil prices and a slide in the shares of oil services companies. Shares of Schlumberger fell 3.1 percent to $73.98. The stock of Halliburton ended the day down 2.7 percent to close at $39.62.

After the bell, shares of Adobe Systems rose 5.6 percent to $43.05 after its results exceeded Street estimates. The stock ended the regular session at $40.75, down 0.8 percent.

In Tuesday's volatile trading, the Dow swung 132.25 points from its session high to its intraday low. The Nasdaq saw a swing of 47.18 points from its intraday high to its session low. During the session, the S&P 500 traded as low as 1,538.57. The S&P's swing from its intraday high to that session low covered 18.68 points.

The CBOE Volatility Index rose 7.71 percent to end at 14.39. Earlier, the VIX hit an intraday high of 15.40 - up 15.27 percent from Monday's close.

On Monday, Goldman Sachs increased its year-end target for the S&P 500 to 1,625 while Morgan Stanley raised its target to 1,600.

The day's declining shares included Electronic Arts, which fell 8.3 percent to $17.15 a day after the video games publisher's chief executive resigned after six years at the helm, saying he held himself accountable for missed targets.

Shares of Cliffs Natural Resources fell 6.6 percent to $20.33 after Goldman Sachs cut its price target for the iron ore producer's stock, citing a bleak outlook for the steelmaking material.

Among the day's gainers, Walgreen and partner Alliance Boots said they had signed a 10-year deal with AmerisourceBergen and will take a stake in the distribution company, ending Walgreen's current contract with Cardinal Health. Walgreen shares hit $45.80, their highest since September 2007, and closed at $44.74, up 5.4 percent. Amerisource gained 3.6 percent to $50.06. In contrast, Cardinal lost 8.2 percent to $42.35.

Economic data added to upbeat views on the housing sector. Housing starts data showed that groundbreaking to build new U.S. homes climbed in February and new permits for construction rose to their highest since 2008, in a sign the housing market's recovery was building momentum.

Approximately 6.8 billion shares changed ;hands on the three major equity exchanges, as  compared to the 2012 average daily closing volume of about 6.45 billion shares.

Cyprus Rejects Bailout

Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.

The vote in the tiny legislature was a stunning setback for the 17-nation currency bloc, angering European partners and raising fears the crisis could spread; lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted austerity measures over the last three years to secure European aid.

With hundreds of demonstrators outside the parliament chanting "They're drinking our blood", the ruling party abstained and 36 other lawmakers voted unanimously to reject the bill, bringing the Mediterranean island, one of the smallest European states, to the brink of financial meltdown.

Finance Minister Michael Sarris had already headed to Moscow, amid speculation Russia could offer assistance given the high level of Russian deposits in Cypriot banks. President Nicos Anastasiades, barely a month in office, spoke by phone with Russian President Vladimir Putin after the vote.

"The voice of the people was heard," 65-year-old pensioner Andreas Miltiadou said among a crowd of demonstrators jubilant after the vote.

EU countries had warned they would withhold 10 billion euros ($13 billion) in bailout loans unless depositors in Cyprus, including small savers, shared the cost of the rescue, an unprecedented step in the stubborn debt crisis.

The European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, which were hard hit by the financial crisis in neighboring Greece. The island's partners barely disguised their anger.

Euro zone paymaster Germany, facing an election this year and increasingly frustrated with the mounting cost of bailing out its southern partners, said Cyprus had no one to blame but itself for the gravity of the situation.

However, it was Europe's demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts that led outraged Cypriots to empty bank cash machines and unsettled financial markets.

An important issue in negotiations has been the high level of deposits held in the island's banks by non-EU citizens and companies, notably from Russia, where Cyprus has established itself as a major provider of offshore financial services.

The EU and International Monetary Fund are demanding Cyprus raise 5.8 billion euros from bank depositors to secure the bailout it needs to rescue its financial sector. They say a bailout of more than 10 billion euros would tip Cyprus's debt level into unmanageable territory for its 1.1 million people. Yet, members of Parliament said the levy on deposits crossed a red line. International market reaction has been muted so far but that might change.

While Brussels has emphasized that the measure was a one-off for a country that accounts for just 0.2 percent of European output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.

Some Cypriots hope they can get aid from Russia, which has bailed out Cyprus in the past. Many Russians keep their money in Cyprus and operate businesses from there. Russian authorities have denied that the Kremlin might offer more money, possibly in return for a future stake in Cyprus's large but as yet undeveloped offshore gas reserves, which have raised the island's strategic importance.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a "Trojan donkey" for Moscow inside the European Union since it joined in 2004.

Banks in Cyprus are to remain shut on Wednesday to avoid a bank run. The island's stock exchange will also be closed on Wednesday.