NEW YORK (Reuters) – Stocks tumbled more than 2 percent on Friday after the top German official at the European Central Bank resigned in protest of the bank’s bond-buying program, which has been a major tool in fighting the region’s debt crisis.

The resignation of Juergen Stark from the ECB throws into question policymakers’ ability to deal with Europe’s debt crisis, a problem that could engulf a world economy already teetering on the brink of recession.

Investors’ rising fears were highlighted by a 12 percent jump in the market’s main measure of expected turbulence, the VIX volatility index .VIX. The VIX neared 40, close to its highest level this year, as it marked its biggest jump in three weeks.

“Stark’s resignation is suggesting that there is a lot of pressure being built in the senior levels in the ECB,” said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania. “There is an increasing realization that this is a major solvency issue in the banking system.”

Doubts about President Barack Obama’s $447 billion stimulus proposal added to the negative sentiment, with investors unconvinced his administration has the tools to revive the flagging U.S. economy.

The sell-off was broad and on solid volume. All 10 S&P sectors were in the red and more than 80 percent of stocks listed on the New York Stock Exchange fell. There were 8.7 billion shares traded on the NYSE, the Nasdaq and the Amex, above the exchanges’ 20-day moving average.

Unnerving traders further were unconfirmed terrorism threats against New York City and Washington just ahead of the 10th anniversary of the September 11 attacks.

“There is an extreme amount of negativity,” said Sam Ginzburg, a senior trader at First New York Securities.

“In talking to the sell-side desks that we do business with, they’re not telling me that there are long-onlys adding to or initiating positions right now,” he said.

The Dow Jones industrial average .DJI dropped 303.68 points, or 2.69 percent, to 10,992.13. The Standard & Poor’s 500 Index .SPX dropped 31.67 points, or 2.67 percent, to 1,154.23. The Nasdaq Composite Index .IXIC dropped 61.15 points, or 2.42 percent, to 2,467.99.

The ECB has been buying up sovereign bonds to help hold down borrowing costs in some debt-strapped euro zone members, and the program has been considered critical to arresting market contagion. The resignation of Stark, who will step down by the end of the year, may deepen the gulf between the ECB and German guardians of central banking orthodoxy.

At a meeting of finance chiefs from the Group of Seven wealthy nations being held in France, U.S. Treasury Secretary Timothy Geithner on Friday pressed Europe’s strongest economies to give “unequivocal” financial support to weaker euro zone states to overcome a debt crisis that threatens the world economy.

The S&P 500 ended the week 1.7 percent lower and is now down 8.2 percent this year.

Shares of some big companies fell after Obama’s speech did not address proposals to allow large, multinational companies to repatriate an estimated $1.5 trillion of overseas profits to the United States at a reduced tax rate.

“These are software companies, pharma companies that have billions of dollars stranded overseas,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “It’s a disappointment that we didn’t see a definitive package on bringing those profits back home.”

Among stocks that would benefit from such a move, Xerox Corp (XRX.N) fell 5.5 percent to $7.41 and Hewlett Packard (HPQ.N) fell 5.1 percent to $22.65.

Bank of America Corp (BAC.N) officials discussed slashing roughly 40,000 jobs during the first wave of a restructuring, The Wall Street Journal said, citing people familiar with the plans. The shares slid 3.1 percent to $6.98.

McDonald’s Corp (MCD.N) fell 4.1 percent to $84.02. The world’s largest hamburger chain reported a lower-than-expected rise in worldwide August sales at established restaurants on a steep drop in Japan and a lull in new product launches in the United States.

(Editing by Leslie Adler)

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NEW YORK (Reuters) – Don’t expect to see Sallie Krawcheck at the helm of another Wall Street bank.

After her firing Tuesday from Bank of America’s (BAC.N) wealth management unit, it’s likely the 46-year-old executive will jump to a money-management firm or private equity firm, said recruiters, industry executives and people who know her personally.

Krawcheck has been approached by a number of money management firms, and is weighing some opportunities, said one person who claimed to be familiar with her thoughts.

Krawcheck declined to comment.

Given her abrupt firing this week and a surprise push out the door of Citigroup Inc almost three years earlier after serving as chief financial officer and global wealth management head, it’s not surprising Krawcheck might leave the “sell” side of the investment business, several observers said.

The end of her tenure at two big but troubled banks may reflect personal tensions with bosses but her charm and the bottom-line success she enjoyed at both companies should hold her in good stead on a job search, they added.

“Her marquee name and presence would be a help to a fund company” that uses big brokerage firms to distribute its investment products, said Mark Elzweig, a New York-based recruiter of retail brokers.

FAST CLIMB UP

Krawcheck began her career as a research analyst at Salomon Brothers, was briefly a corporate finance associate at Donaldson, Lufkin & Jenrrete, and climbed the commercial banking research ladder at Sanford C. Bernstein & Co to become chief executive of the vaunted research firm before being wooed by Citigroup.

Recruiters without specific knowledge of her plans said that AllianceBernstein L.P. (AB.N) — the current iteration of the firm where she built her reputation — and Legg Mason Inc (LM.N) are strong possibilities for Krawcheck. Both have strong reputations but have been struggling with investment performance in recent years and suffering from client withdrawals.

Krawcheck’s experience as head of Citigroup’s Smith Barney and of Bank of America’s Merrill Lynch gives her a good base to argue that she has strong insight into how brokers raise money from investors and how they negotiate with fund companies. The downside, recruiters said, is that she has never run a pure asset management operation.

“Taking her on at the top would be a significant risk,” one recruiter said.

John Meyers, a spokesman at AllianceBernstein, declined to comment. Mary Athridge, a spokeswoman at Legg Mason, said the firm doesn’t comment on speculation.

Neither company is known to be looking for replacements for their top executives.

Krawcheck has certainly caught the attention of powerful Wall Street executives. In the fall of 2002, Sanford “Sandy” Weill recruited her as chief executive of Citi Smith Barney with the charge of restoring the unit’s reputation after a scandal over biased stock research.

In 2004, she was promoted to chief financial officer and head of strategy at the banking giant. She had problems, however, with Vikram Pandit, who arrived at Citigroup in December 2007 to replace Weil. Pandit and Krawcheck butted heads on key issues, including how to reimburse clients who bought hedge funds that turned out to be toxic and auction-rate securities that couldn’t be sold at any auction.

One year later, Krawcheck was out.

MERRILL CALLING

In August 2009, however, she made a headline return by joining Bank of America — which earlier that year acquired the brokerage army of Merrill Lynch — as head of its global investment and wealth management unit.

Client assets and revenue steadily climbed under her watch, even as the commercial bank’s fortunes suffered a battering from its ill-fated purchase of Countrywide Financial in 2007. In the first half of this year, net income at the global wealth management unit, including Merrill Lynch, rose 35 percent from a year earlier to $1.04 billion. Bank of America had a $6.8 billion net loss in that period.

Krawcheck and commercial banking chief Joe Price, however, became the first major victims of a restructuring that Bank of America Chief Executive Brian Moynihan announced last week as part of his attempt to simplify operations, restore capital and slash expenses. Krawcheck’s position was also eliminated, and the private banking, asset management and brokerage operations she ran now report into David Darnell, a longtime commercial banking executive at BofA who was promoted to co-chief operating officer of the company.

“Moynihan wanted more control over what she was doing,” said a recruiter familiar with Merrill executives.

SIMPLER POLITICS

At a pure asset management firm, Krawcheck might be able to shake off Wall Street’s insatiable demand to meet very short-term goals and the cultural management wars endemic to big financial companies, recruiters said. At Bank of America, for example, Krawcheck had to manage executives running Merrill Lynch, U.S. Trust’s private bank and Merrill’s private bank — each of which were generally pursuing the same group of very wealthy individuals.

Some observers say another likely possibility is for Krawcheck to become a deal-maker at a private equity firm, where her charm and savvy would serve equally well.

“She’s smart, attractive, and would play well with the investor community,” said Gary Goldstein, a Wall Street recruiter who touts Carlyle Group, Kohlberg Kravis Roberts & Co and Bain & Co as potential landing places for Krawcheck.

He said he had no specific knowledge of her plans.

Regardless of where she goes, Krawcheck will likely be spending several months working out her severance.

At a minimum, according to Bank of America’s 2010 proxy filing with regulators, Krawcheck will receive between $2.4 million and $4.7 million in stock grants if she is let go — at a time when BofA shares are worth about half their trading value at the end of 2010.

Based on her past history and that of other fired executives, Krawcheck could take home as much as $5 million to $10 million after negotiations, although Bank of America’s parlous financial state may make a monster payout tough.

“Ten million wouldn’t sound ridiculous in the old world, but we are in a very different world right now and the bank is talking about laying off over 40,000 people,” said Steven Hall, managing director of Steven Hall & Partners, a New York-based executive compensation consultant.

Krawcheck’s full severance will depend on whether her departure is characterized as an involuntary termination without cause or a workforce reduction.

“That’s the starting point for the negotiations,” Hall said. “Her lawyers will probably ask for something much higher.”

(Reporting by Jessica Toonkel and Ashley Lau; editing by Jennifer Merritt, Bernard Orr)

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NEW YORK (Reuters) – Wall Street fell for a third day on Tuesday on fears Europe still has failed to tackle its debt crisis, prompting worries the market is headed to new lows for the year.

Investors channeled cash into less risky assets as doubts resurfaced over the political will of Italy and Greece to push through tough budget measures and as Germany hardened its stand against providing more aid. The worries over the European debt crisis renewed fears that the global economy could fall into recession.

The S&P 500 is now down 14.5 percent from its highest point in 2011, reached at the end of April. Though investors have periodically taken heart from signs that Europe has carved out a plan to deal with its festering crisis, confidence has been repeatedly walloped every time there is a development showing that the problems have not been solved.

“We have got a shot at trading the S&P under 1,100 again,” said Nick Kalivas, an equity index analyst at MF Global in Chicago. “I don’t sense that people are really going to defend the market until something like that occurs.”

A similar pattern of fractured confidence exists in bank stocks. Major U.S. banks were among the biggest decliners on Tuesday, with the KBW Bank index off nearly 2 percent. Late on Friday, the Federal Housing Finance Agency sued 17 large U.S. banks over subprime mortgage-backed bonds, compounding fears about the health of the sector.

JPMorgan and Bank of America, both subjects of the suit, fell more than 3 percent on Tuesday.

The CBOE Volatility Index, or Vix, a measure of expected market turbulence, posted its biggest gain in nearly two weeks, climbing 9.4 percent to 37.08.

“Right now there is a tremendous amount of uncertainty,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. “There is a decent chance that we are in a bear market.”

The Dow Jones industrial average dropped 100.96 points, or 0.90 percent, to 11,139.30. The Standard & Poor’s 500 Index fell 8.73 points, or 0.74 percent, to 1,165.24. The Nasdaq Composite Index lost 6.50 points, or 0.26 percent, to 2,473.83.

Traders are monitoring lows set by major global indexes during the selloff in the first half of August. So far, only Germany’s DAX, down nearly 25 percent this year, and Japan’s Nikkei have fallen below those levels.

The S&P 500 hit a 2011 low of 1,101 on August 9.

European shares extended losses on Tuesday, after falling more than 4 percent on Monday, hitting their lowest close in more than two years on worries the euro zone debt crisis was deteriorating. The PHLX Europe sector index slumped 3.5 percent. U.S.-listed shares of Credit Suisse fell 12.9 percent to $23.84.

Gold stocks got a lift as the price of gold jumped to a record high above $1,920 after Switzerland pegged its currency to the euro in an effort to prevent its rapid appreciation in an extended spat of safe-haven buying. The precious metal then retreated 2 percent from that level as investors took profits.

The Arca Gold Bugs index, which measures the performance of 16 U.S.-listed gold miners, rose 0.6 percent. Eldorado Gold Corp was the biggest percentage gainer, up 2.4 percent to $21.36.

The Financial Times reported several big U.S. banks, in talks with state officials on settling claims of improper mortgage practices, were offered a deal to limit legal liability in return for a multibillion-dollar payment.

Several brokerages including Nomura cut their price targets on big lenders.

Bank of America Corp lost 3.6 percent to $6.99 and JPMorgan Chase & Co fell 3.4 percent to $33.44.

Among gainers, Sunoco Inc rose 5.3 percent to $38.03 after the energy company said it plans to exit its refining business and focus on its logistics operations.

Packaging company Temple-Inland Inc jumped 25 percent to $30.85 after International Paper Co agreed to buy it for $32 per share. International Paper rose 8.9 percent to $27.77.

Trading volume was lower than usual at 7.9 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq.

Decliners beat advancers by nearly than three-to-one on the New York Stock Exchange. On Nasdaq, decliners beat advancers by about two-to-one.

(Reporting by Edward Krudy; Editing by Leslie Adler)

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