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Stocks, bond yields drop amid political turmoil

By ALEX VEIGA Associated Press

The brewing political crisis in Washington rattled Wall Street Wednesday, knocking the Dow Jones industrial average down more than 370 points and giving the stock market its biggest single-day slump in eight months.

Investors worried that President Donald Trump's pro-business agenda could be hindered by fallout from allegations that he asked the FBI to end an investigation into former National Security Adviser Michael Flynn.

The steep drop ended an unusually long period of calm for the markets, which had been hovering near all-time highs.

Financial stocks, which had soared in the months since the election, declined the most as bond yields fell sharply. Bonds, utilities and gold rose as traders shunned riskier assets. The dollar fell.

"When you are at these valuations, the market has to reassess whether or not the agenda is actually going to be implemented," said Quincy Krosby, market strategist at Prudential Financial. "What you're seeing is a classic run toward safety."

The Standard & Poor's 500 index had its biggest drop since September, sliding 43.64 points, or 1.8 percent, to 2,357.03. The Dow lost 372.82 points, or 1.8 percent, to 20,606.93. The Nasdaq composite index, coming off setting two consecutive record highs, gave up 158.63 points, or 2.6 percent, to 6,011.24.

Small-company stocks fell more than the rest of the market. The Russell 2000 index sank 38.79 points, or 2.8 percent, to 1,355.89. Those companies would stand to benefit even more than large ones from corporate tax cuts Trump is proposing. They also had risen sharply in the months following the election.

The sell-off snapped an unusually long period of calm after hitting a series of record highs. On Tuesday the S&P 500, the benchmark favored by professional investors, marked its 15th straight day of moving up or down by less than 0.5 percent. It closed at its latest record high on Monday.

All told, the S&P 500 is still up 10.2 percent since the election last November, while the Dow is up 12.4 percent.

Bond prices rose sharply. The 10-year Treasury yield fell to 2.21 percent from 2.33 percent late Tuesday, a large move.

The seeds of Wednesday's steep market sell-off were present late Tuesday, when a published report revealed that Trump asked the now-fired FBI Director James Comey to drop the bureau's investigation into Flynn. The White House denied the report.

After trading closed for the day, the Justice Department appointed former FBI Director Robert Mueller as a special counsel to oversee an investigation into allegations Russia and Trump's campaign collaborated to influence the election last year.

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