Stocks Fall Sharply Amid Credit Fears

NEW YORK (AP) -- Wall Street plunged anew Friday, hurtling the Dow Jones industrial average down more than 280 points after comments from a major investment bank exacerbated the market's fears of a widening credit crunch.

The drop of more than 2 percent in major stock market indexes was a fitting end to two volatile weeks on Wall Street and followed back-to-back, late-day triple digit gains in the Dow. This time, the catalyst for a sharp skid was Bear Stearns Cos. Chief Financial Officer Sam Molinaro, who described turmoil in the credit market as the worst he'd seen in 22 years.

Stocks started the day with a decline after the government said jobs growth was not as strong as expected last month and a trade group reported that the nation's service sector grew at a slower pace than expected in July. Then, credit concerns, which have dogged investors for months and have roiled markets since last week, further weighed on investor sentiment; Standard & Poor's Ratings Services lowered its credit outlook on Bear Stearns to negative from stable because of the investment bank's exposure to the distressed mortgage and corporate buyout markets.

"I think there is a tremendous amount of uncertainty with regard to the credit markets and how the situation will ultimately settle," said Mike Malone, trading analyst at Cowen & Co.

Investors remain worried that problems in subprime mortgages - those made to borrowers with poor credit histories - will force lenders to make credit less available. When people and companies can't borrow money as easily, the economy tends to slow down.

"There is not going to be one sort of clear signal that suggests everything is OK," Malone said, referring to the subprime and credit worries. "I think it's going to take time and the equity markets are going to experience heightened volatility."


Investors could be in for more tumultuousness in the coming week, which not only includes economic figures on productivity and consumer credit, but also brings a meeting of the Federal Reserve's Open Market Committee, which has left short-term interest rates unchanged for the past year. Investors will likely be looking to its statement following its meeting for any word on the mortgage and credit markets.

The Dow fell 281.18 to 13,182.15. As has been typical in recent selloffs, much of the decline came late in the session; the Dow lost more than 100 points in the final 15 minutes Friday. Despite the day's loss, the index was off only 0.63 percent for the week.

Broader stock indicators also fell sharply Friday. The Standard & Poor's 500 index dropped 39.14, or 2.66 percent, to 1,433.06, and the Nasdaq composite index fell 64.73, or 2.51 percent, to 2,511.25. For the week, the S&P fell 1.77 percent, while the Nasdaq fell 1.99 percent.

The concerns have pulled stocks from highs seen only weeks ago. The Dow, which on July 19 closed above 14,000 for the first time, now sits about 819 points below that level. That 5.9 percent decline puts the Dow more than halfway toward the technical threshold of a correction, which is 10 percent.

Small-capitalization stocks were hit hard again Friday, partly because the global economy appears to be growing faster than that of the United States. Investors often contend profits at larger companies are more likely to hold up amid a U.S. slowdown because much of their business is drawn from overseas. The Russell 2000 index of small-capitalization stocks fell 28.57, or 3.64 percent, to 755.42.

The session also saw a notable rise in the bond market, as investors fled to the relative safety of fixed-income investments. The yield on benchmark 10-year Treasury note fell to 4.68 percent from 4.77 percent late Thursday. Bond prices move opposite yields.

The unease over the mortgage market and tightening credit Friday again dragged down financial stocks, which have been hard hit in recent weeks.

Bear Stearns fell $7.28, or 6.3 percent, to $108.35. Lehman Brothers Holdings Inc. fell $4.67, or 7.7 percent, to $55.78; the stock traded as low as $55.46, below its 52-week low of $58.85. Merrill Lynch & Co. fell $2.50, or 3.5 percent, to $70.05. The stock traded as low as $69.14, below its earlier 52-week low of $70.86.

Investors also fled lenders. American Home Mortgage Investment Corp. confirmed late Thursday it has stopped taking mortgage applications and is laying off most of its 7,000 staffers. American Home dropped 76 cents, or 52 percent, to 69 cents.

Countrywide Financial Corp. fell $1.77, or 6.6 percent, to $25. The nation's biggest mortgage lender said late Thursday it has adequate access to cash and isn't facing the liquidity crunch that is hitting dozens of other smaller players.

In economic news, which didn't provide much reason for investors to look past the mortgage and credit concerns, the Labor Department said nonfarm payrolls rose 92,000 last month, less than the 132,000 jobs created in June and below the average forecast of about 135,000. Also, unemployment ticked up to 4.6 percent - a six-month high - from 4.5 percent in June. Still, overall unemployment remains low, analysts noted.

Also, the Institute for Supply Management said its non-manufacturing index, which measures service sector activity, fell in July to 55.8 from 60.7 in June. Wall Street had expected a reading of 59, according to Thomson Financial/IFR.

Investors still uncertain about the effect of rising subprime mortgage defaults on the broader economy have regarded the stable job market and consumer spending as signs the economy might hold up despite a tighter lending climate. That's because people with steady paychecks are more likely to keep spending and pay back their debt. At the same time, some pullback in employment might ease some concerns about wage inflation.

"I think the ISM and the jobs numbers are going to accelerate the general consensus view that maybe the economy is slower than anticipated," said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc.

"The market has become very much driven from data point to data point because of uncertainty of a number of issues," he said, citing unease over credit, oil prices, and a weak dollar.

Crude oil futures settled down $1.38 at $75.42 per barrel on the New York Mercantile Exchange after the employment report suggested the economy could slow and demand for oil could fall. Crude closed at a record $78.21 a barrel on Tuesday, though ended the week 2 percent lower.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to 4.54 billion shares compared with 4.18 billion traded Thursday.

In Asian trading, Japan's Nikkei stock average fell 0.03 percent, Hong Kong's Hang Seng index rose 0.4 percent, and China's Shanghai Composite Index rose 3.5 percent. In Europe, Britain's FTSE 100 fell 1.21 percent, Germany's DAX index fell 1.31 percent, and France's CAC-40 fell 1.48 percent.

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The Dow Jones industrial average ended the week down 83.56, or 0.63 percent, at 13,181.91. The Standard & Poor's 500 index finished down 25.89, or 1.77 percent, at 1,433.06. The Nasdaq composite index ended down 50.99, or 1.99 percent, at 2,511.25.

The Russell 2000 index finished the week down 22.41, or 2.88 percent, at 755.42.

The Dow Jones Wilshire 5000 Composite Index - a free-float weighted index that measures 5,000 U.S. based companies - ended Friday at 14,432.34, down 278.44 for the week. A year ago, the index was at 12,826.14. By TIM PARADIS AP Business Writer

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European, Asian Markets Slip Again

FRANKFURT, Germany (AP) -- European and Asian markets tumbled again Wednesday, spurred by mounting fears that the crisis in the U.S. subprime market could engulf banks and other companies around the world.

In Germany, the DAX-30 Index fell nearly 1 percent to 7,517.99 as banking stocks slid on news that American Home Mortgage Investment Corp. had missed margin calls from its lenders and was considering liquidation.

The company said turbulent conditions in the mortgage market forced it to mark down the value of its portfolio of home loans and loan-backed bonds.

That caused shares to drop as persistent concerns that woes in the U.S. housing loan market could prove a drag on global growth. The U.K. FTSE 100 index fell 1.2 percent to 6,283.70 and the French CAC-40 index lost 1.6 percent to 5,659.26.

In Asia, Japanese stocks sank 2.2 percent to a four-and-half-month low, Hong Kong's market fell 3.2 percent, and South Korean shares plunged 4 percent. Indian stocks also sank 4 percent.
Chinese stocks, which had shrugged off the global market turmoil until now, retreated from record highs. The benchmark Shanghai Composite Index fell 3.8 percent.

Jimmy Yates, a dealer at CMC Markets in London, said the drop in European markets was linked to the subprime mortgage crisis in the United States, particularly in the wake of Tuesday's announcement by American Home Mortgage.

"A lot of this stuff has been talked about and now people are starting to really factor it in and thinking it could have an effect on GDP and a U.S. slowdown," Yates told The Associated Press.

"The knockdown effect on the global economy can never be discounted."

He said traders are curious and cautious about what kind of amounts of money could be involved, adding that some estimates have run as high as $250 billion.

"No one knows what kind of effect it's going to have," he said. "We could be talking massive amounts of money."

Deutsche Bank AG fell more than 2 percent even after its second-quarter profit surged 31 percent on an investment banking business that proved to be solid amid global market jitters.

The bank said its exposure to the subprime mortgage market, or real estate loans made to borrowers with weak credit histories, was not significant.

Similarly, French bank BNP Paribas fell nearly 1.2 percent after posting a 20 percent jump in second-quarter net profit and saying that it is hardly affected by the current subprime mortgage crisis or by tensions in the leveraged buyout market.

Rebecca Engmann Darst of Interactive Brokers said that credit fears trailing the losses in global indices was an ominous sign for U.S. shares.

"Spreading turmoil in the global financial sector on fears of subprime contagion and a generalized credit crunch led Asian stocks sharply lower," she said, adding that Europe's indexes were showing remarkable slides as well.

U.S. stocks zigzagged in early trading Wednesday as Wall Street tried to grapple with continued worries about U.S. home loans and the credit market. The Dow Jones Industrial Average was up 38.77 points to 13268.07 in midmorning trading, after it had fallen earlier in the day fell 0.2 percent to 13,180.04. Broader stock indicators fell.

In Tokyo the Nikkei 225 fell 2.2 percent, to 16,870.98 points, the lowest since March 16. The Korea Composite Stock Price Index, or Kospi, dropped 4 percent to 1,856.45, the lowest close in a month.

In Australia, worries about contagion rose after Fortress Investments Ltd., the high-yield fund manager of Macquarie Bank Ltd., said late Tuesday that investors in its two funds face losses of up to 25 percent, affected by price volatility in the U.S. credit market.

Though its funds aren't directly exposed to U.S. subprime mortgages and Macquarie Bank doesn't have any direct exposure, either, the bank's shares tumbled 10.7 percent, helping drag down Sydney's benchmark S&P/ASX 200 index 3.3 percent.

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Wall Street Skids on Subprime Anxiety

NEW YORK (AP) -- Wall Street resumed its downward skid Tuesday, falling sharply as renewed concerns about soured home loans blew away what had looked like a solid recovery rally. The Dow Jones industrials lost nearly 150 points, while investors seeking safety moved into bonds.

Early in the session, stocks soared following strong earnings from General Motors Corp. and Sun Microsystems Inc. and amid somewhat mixed economic data. But the market pulled back after American Home Mortgage Investment Corp. said Tuesday it hasn't been able to tap into its credit lines and has hired advisers to consider its options, including the sale of its assets.

Wall Street has been concerned about lenders after some loans made to borrowers with poor credit have gone bad, and that anxiety contributed to the market's big plunge last week. Tuesday's trading showed how vulnerable the market remains, and how any advance can quickly evaporate.

"Anything that argues for higher (interest) rates and worsening credit conditions will be something that takes the air out of the market," said Denis Amato, chief investment officer at Ancora Advisors. He said the market's short-lived advance was in part made possible by a temporary easing of credit fears.

The Dow fell 146.32, or 1.10 percent, to 13,211.99 after being up as much as 140 points during the session. The move lower undid a nearly 93 point gain the blue chips saw Monday in a partial rebound from the 585 points they lost over the course of Thursday and Friday.

Broader stock indicators fell. The Standard & Poor's 500 index declined 18.64, or 1.26 percent, to 1,455.27, and the Nasdaq composite index fell 37.01, or 1.43 percent, to 2,546.27.

Bond prices, which move opposite yields, rose as investors quickly fled stocks. The 10-year Treasury note's yield fell to 4.75 percent from 4.81 percent late Monday.

Oil prices closed above $78 a barrel for the first time Tuesday on the New York Mercantile Exchange, advancing $1.38 to $78.21.

The dollar was mixed against other major currencies. Gold prices closed higher on the New York Mercantile Exchange.

"Everyone is walking on pins and needles and with the gains that were behind everybody I think they're a little more susceptible to the bad news," Amato said, referring to the tenuous nature of the session's early rally.

The initial gains came after a mixed batch of economic reports. The Commerce Department's year-over-year core personal consumption expenditures - a closely watched inflation measure - rose 1.9 percent in June, within the Federal Reserve's comfort zone. The report also showed that personal spending last month inched up 0.1 percent, its slowest pace in nine months.

And while a report from the Conference Board indicated that consumer confidence jumped to a six-year high, June construction spending dipped and the July Chicago purchasing manager's index indicated weaker-than-expected growth. The report is considered a precursor to the Institute for Supply Management's national manufacturing index, which is due Wednesday.

The market had received a boost from better-than-expected earnings from automaker GM and Sun Microsystems, which makes networking equipment. The stock market's gains Monday and decline Tuesday follow last week's sharp pullback, which was fueled by persistent worries that a deteriorating lending environment will make it harder for companies to borrow money.

As the market's about-face Tuesday shows, investors should expect continued volatility, one observer noted.

"The bottom line is volatility has picked up, and it's going to continue to pick up," said Jeff Schappe, chief investment officer at BB&T Asset Management, adding that there is potential for the market to drop another 5 percent. Last week, the Dow Jones industrial average tumbled about 5 percent from its record close of 14,000.41, reached earlier in July.

"I think investors need to not focus on the day-to-day volatility in the market, and look at the longer term," Schappe said. He noted that while credit jitters will likely keep riling the market for a while, the long-term view looks positive.

In corporate news, American Home fell $9.43, or 90 percent, to $1.04 following disclosure of its difficulties.

Adding to unease over American Home, Moody's Investors Service said it is raising its assumptions for losses on pools of Alt-A loans, which are above supbrime but below prime loans in terms of credit quality. The move could stir concerns that credit problems are spreading beyond subprime loans to a higher quality of borrower.

GM fell 21 cents to $32.40. The stock had been up much of the session after releasing its better-than-expected quarterly earnings, but followed the rest of the market lower. The company said it benefited from higher sales in markets worldwide.

Sun Microsystems jumped 21 cents, or 4.3 percent, to $5.10.

Though core inflation - which strips out volatile food and energy prices - has been registering at fairly mild levels, many investors are still concerned that energy prices will keep crimping consumer spending.

Investors also remain worried about credit getting tighter due to the faltering housing market. On Tuesday, a housing index released by Standard & Poor's showed that U.S. home prices fell for a fifth consecutive month in May by the steepest drop in about 16 years.

However, merger and acquisition activity hasn't appeared to be damped yet by tougher lending standards.

Billionaire investor Nelson Peltz's Triarc Cos. said he is willing to offer $37 to $41 a share to buy Wendy's International Inc., while The Wall Street Journal reported that its parent company, Dow Jones & Co., and Rupert Murdoch's News Corp. are close to a deal. The Bancroft family, controlling shareholders of Dow Jones, agreed to vote in favor of News Corp's bid, the newspaper reported.

Wendy's rose $1.34, or 4 percent, to $35.03.

Dow Jones shares rose $5.82, or 11.3 percent, to $57.38, while News Corp. fell 18 cents to $22.66.

Declining issues outnumbered advancers by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 4.18 billion shares compared with 4.04 billion traded Monday.

The Russell 2000 index of smaller companies fell 8.11, or 1.03 percent, to 776.12.

In Asian trading, Japan's Nikkei stock average fell 0.23 percent, Hong Kong's Hang Seng index jumped 1.96 percent, and China's Shanghai Composite Index rose 0.7 percent to a new record.
In European trading, Britain's FTSE 100 rose 2.48 percent, Germany's DAX index advanced 1.71 percent, and France's CAC-40 rose 1.85 percent.

By MADLEN READ AP Business Writer

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Dow Jones Plunges more than 300 points !

NEW YORK - US shares plunged on Thursday in one of the worst selloffs this year, as investors gripped by housing market and 'credit crunch' fears ran for cover.

A late comeback helped Wall Street avert its worst session of the year, but analysts said the punishing losses may have caused a shift in investor sentiment after strong gains in the first half of the year.

The Dow Jones Industrial Average sank as much as 448 points before bouncing back somewhat, ending with a loss of 311.50 points (2.26 per cent) at 13,473.57.

It was the worst day for the blue-chip index since the Feb 27 tumble in the wake of a stock market collapse in Shanghai, in which the Dow average lost 416 points.

The tech-heavy Nasdaq composite sank 48.83 points (1.84 per cent) to 2,599.34 and the broad-market Standard & Poor's 500 index slid 35.43 points (2.33 per cent) to 1,482.66.

The market was reacting to more gloomy news about the US housing market, which has been in a slump for more than a year and a half.

Data showed sales of new homes dropped 6.6 per cent in June to an annualised 834,000 units. Over the past year, sales of new homes plunged 22.3 per cent

More significantly, Wall Street is worried that failures in the housing market will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.

'The catalyst for the selloff is just a realisation that the subprime and housing issues have a lot more tentacles than originally thought and that the restriction in credit will hurt the (corporate) deal flow and by extension equity performance,' said Mr Paul Nolte, analyst at Hinsdale Investments.

Mr Nolte said he believes stock market valuations remain high even though they are below the levels of the dot-com boom.

'Ten years ago the market was expensive, then we got to crazy expensive, but we haven't gotten back to normal valuations,' he said.

Mr Kevin Giddis, an analyst at Morgan Keegan, said some of the speculative fervour is coming out of the stock market.

'Hedge funds and private equity transactions are carrying the equity market to new records,' he said.

'As money gets tighter and tighter, this activity will cease. When it does, the market must then turn its attention back to earnings, and across the board, they are not as good as they seem,' he added.

But Mr Andy Brooks, head of equity trading at T. Rowe Price, said herd psychology led to a selling stampede that may not be justified.

'It seems psychology is carrying more weight than the actual facts,' Mr Brooks said.
He said the selloff is part of 'a healthy correction' to 'wring out the excess' in the market and advised clients to hold firm.

'I think this is an opportunity to buy good companies at better prices,' he said. 'Stocks are on sale today. If you have a long-term view and you're looking for an opportunity to get in the market, now is a good time,' he added. -- AFP