By Sagarika Jaisinghani and Shriya Ramakrishnan
(Reuters) - An almost 60% surge in shares of American Airlines (NASDAQ:AAL) led stellar gains for a series of social-media hyped stocks on Thursday, broadening a battle between small-time traders and major Wall Street institutions that has shaken U.S. and European stock markets.
GameStop (NYSE:GME), the video game chain whose 1,700% rally has been at the heart of the slugfest in the past week, retreated after initially adding another 37% in early trading.
On Reddit thread WallStreetBets, where calls to buy stocks have helped drive the extraordinary moves, some of its more than 4 million members reported trading platform Robinhood was now preventing investors from buying new shares in GameStop and other of the companies.
Robinhood, one of the biggest of the easy access apps that has spurred the development of a huge online community of amateur traders, did not immediately respond to requests for comment.
Shares in American Airlines soared as much as 60%.
"It does appear that it (American Airlines) may be getting caught up in this day trading frenzy," said Randy Frederick, vice president of trading and derivatives for Charles Schwab (NYSE:SCHW) in Austin, Texas.
The dramatic jumps in the stock price of companies including GameStop, BlackBerry Ltd and AMC Corp drew more calls for regulatory scrutiny and action from commentators.
"In terms of short interest being monitored, the U.S. markets are probably the most transparent, but there's always room for improvement," former SEC chairman Jay Clayton told CNBC.
In Australia, previously immune to the trend, heavily shorted shares including Webjet and Tassal Group, climbed more than 5% even as Sydney's benchmark ASX 200 index fell 2%. (AX)
Trading in European share markets was subdued, with some of this week's high-flyers including Evotec and Varta nearly flat.
Graphics: Retail trading frenzy, reflation trade drive smallcap stocks higher - https://fingfx.thomsonreuters.com/gfx/mkt/nmopaooozpa/Pasted%20image%201611834967884.png
GAME ON
The short squeeze - where traders have to abandon loss-making "short" bets on a stock falling because it has instead risen - fueled a 2% slide in New York's S&P 500 on Wednesday as investors sold other assets to cover their losses.
Short-sellers are sitting on estimated losses of $71 billion from their positions in U.S. companies so far this year, data from financial data analytics firm Ortex showed.
Futures tracking the main New York index were down another 0.3% on Thursday as Reddit discussion threads again hummed with chatter about a number of stocks. (N)
In one discussion, thousands of participants responded "We love this stock" to a post that called for more buying of GameStop and cast retail traders as Iron Man against a hedge fund Thanos in a nod to the superhero movie "Avengers: Endgame".
The war began last week when famed hedge fund short seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way. He said on Wednesday he had abandoned the bet.
Regarded by market professionals as "dumb money", the pack of traders, some of them former bankers working for themselves, has become an increasingly powerful force worth 20% of equity orders last year, data from Swiss bank UBS showed.
The only-way-is-up nature of stock markets over the past decade, fueled by a constant flow of newly created money from major central banks, has also made it less risky to bet on shares rising.
The U.S. Federal Reserve kept those taps firmly open at its latest meeting on Wednesday.
This week's turmoil caught the attention of the White House, with President Joe Biden's economic team - including Treasury Secretary Janet Yellen on her first full day on the job on Wednesday - "monitoring the situation."
Massachusetts state regulator William Galvin called on NYSE to suspend trading in GameStop for 30 days to allow a cooling-off period.
"The prospect of intervention here is clearly high, but this will just galvanize the (WallStreetBets) community as it just brings home the feeling of inequality in financial markets," said Chris Weston, head of research at broker Pepperstone in Melbourne.
"It's fine to prop up zombie companies through Fed actions but if retail follows a path that greatly distorts asset prices by targeting short sellers, then this gets shut down."