* Cyprus crisis fuels worry about contagion in euro zone
* Parliament in Cyprus rejects tax on bank deposits
* Walgreen, Amerisource jump after deal
* Dow up 0.03 pct, S&P 500 off 0.2 pct, Nasdaq off 0.3 pct
By Caroline Valetkevitch
NEW YORK, March 19 (Reuters) - 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.
"Regardless of the vote in Cyprus, we still have the
problem. No one knows: 'What is the Cypriot financial
restructuring going to look like?'" sad Nicholas Colas, chief
market strategist at the ConvergEx Group, in New York.
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. The
PHLX oil services sector index dropped 2 percent. Shares
of Schlumberger Ltd fell 3.1 percent to $73.98. The
stock of Halliburton dropped 2.7 percent to $39.62.
The Dow Jones industrial average edged up 3.76
points, or 0.03 percent, to close at 14,455.82.
The Standard & Poor's 500 Index fell 3.76 points, or
0.24 percent, to finish at 1,548.34. The Nasdaq Composite Index
slipped 8.50 points, or 0.26 percent, to close at
After the bell, shares of Adobe Systems Inc, the
maker of Photoshop and Acrobat software, rose 5.6 percent to
$43.05 after its results beat analysts' estimates. The stock
ended the regular session at $40.75, down 0.8 percent.
In Tuesday's volatile trading, the Dow made a swing of
132.25 points from its session high to its intraday low. The
Nasdaq made a swing of 47.18 points from its intraday high to
its session low.
The CBOE Volatility Index or VIX, Wall Street's
favorite barometer of fear, 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.
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.
Strategists expect the S&P 500 to still break above its
record high reached in October 2007, but they expect the rally
to slow from there. A Reuters poll of equity strategists
surveyed over the past week put the S&P 500 at 1,600 by year
end, above its Oct. 9, 2007, all-time closing high of 1,565.15.
The Dow initially surpassed its 2007 record levels on March 5
and then set nominal record closing highs on subsequent session
through the close on March 14.
On Monday, Goldman Sachs increased its year-end target for
the S&P 500 to 1,625 while Morgan Stanley raised its target to
The day's declining shares included Electronic Arts Inc
, 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 Inc 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
Among the day's gainers, Walgreen Co and partner
Alliance Boots said they signed a 10-year deal with
AmerisourceBergen and will take a stake in the
distribution company, ending Walgreen's current contract with
Cardinal Health Inc.
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
European bank shares extended Monday's decline, with the
sector's index down 2.1 percent on Tuesday.
"Whether the deposit levy occurs or not, the fact that it
was agreed to by the EU means that claims on private property
are not out of bounds, which pretty much says that nothing is
out of bounds," said Fred Copper, senior portfolio manager,
international equity, at Boston-based Columbia Management, in
reference to the banking crisis in Cyprus.
U.S. 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
U.S. housing market's recovery was building momentum.
The PHLX housing sector index rose 0.3 percent to end
at 191.79, after earlier climbing to 194.41 - its highest level
since late July 2007.
Volume was roughly 6.8 billion shares traded on the New York
Stock Exchange, the Nasdaq and the NYSE MKT, compared with the
2012 average daily closing volume of about 6.45 billion.
Decliners outpaced advancers on the NYSE by about 17 to 13,
while on the Nasdaq, seven stocks fell for every five that rose.