Stocks Fall As Investors Express Concerns

Thursday, August 9th 2007, 9:33 am

By: News On 6

NEW YORK (AP) _ Wall Street fell sharply again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials fell more than 200 points.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone _ institutions, investors, companies, individuals _ can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about available credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw the step as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it offers evidence that the problems in subprime lending are, in fact, spilling into the general economy.

``This is a mini-panic,'' he said. ``All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer.''

Retailers released their July sales figures Thursday, offering what were overall disappointing figures.

Bonds rose sharply as investors again sought the relative safety of Treasurys, with the yield on the benchmark 10-year note falling to 4.79 percent from 4.89 percent late Wednesday. Bond prices move opposite yields.

The Fed didn't soften its stance on inflation after leaving short-term interest rates unchanged Tuesday. However, the renewed credit market concerns spurred bond traders who bet on its next move to predict early in the session that the Fed will cut rates at its meeting next month. Prior to Thursday, investors had seen about a 1 in 4 chance of such a cut.

In midafternoon trading, the Dow fell 205.75, or 1.51 percent, to 13,452.11 after being down more than 250.

Thursday's pullback continued an erratic pattern of triple-digit moves in the Dow since the index posted a record close of 14,001.41 on July 19. In the 14 sessions since then, 10 have seen a triple-digit gains or losses. Gains have evaporated at the first mention of trouble in housing, subprime lending or the credit markets.

The Dow on Wednesday finished 2.45 percent below the record close. Some on Wall Street have been calling for a textbook correction _ a pullback of at least 10 percent. At its lowest close since the market's high, which was Friday's finish of 13,181.91, the Dow was 5.85 percent below the record.

Also Thursday, the broader Standard & Poor's 500 index fell 27.41, or 1.83 percent, to 1,470.08, while the Nasdaq composite index fell 32.48, or 1.24 percent, to 2,580.50.

The pullback came after BNP Paribas Investment Partners said it was suspending three funds together worth about $3.79 billion and wouldn't make investor redemptions until it could determine net asset values.

The funds invest in part in subprime mortgages through a process known as securitization. Investment banks bundle together mortgages _ including those from subprime borrowers _ and sell them off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking the steady flow of income from homeowners making their mortgage payments.

Shares of financial companies, which investors have at times fled recently amid concerns about subprime and credit worries, took another beating Thursday. Citigroup Inc. fell $2.05, or 4.1 percent, to $47.44, while fellow Dow component lost JPMorgan Chase & Co. fell $2.21, or 4.8 percent, to $44.30.

In another sign of trouble for the credit markets, Home Depot Inc. warned it might bring in less than expected from the sale of its wholesale business. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $1.90, or 5 percent, to $35.90 and was the worst performer among the 30 stocks that make up the Dow industrials.

In other corporate news, American International Group Inc., one of the world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday, said it has enough cash and liquidity and ``does not need to liquidate any investment securities in a chaotic market.''

AIG fell $1.40, or 2.1 percent, to $65.08.

Retailers reports no doubt added to Wall Street's glum mood. Pacific Sunwear of California Inc. fell $1.93, or 11.2 percent, to $15.30 after reporting its same-store sales, or sales at stores open at least a year, fell rather than rose as Wall Street had expected. Same-store sales are regarded as a key measure of a retailer's health.

Not all news was bad, however. Luxury retailer Saks Inc. reported stronger-than-expected results. The stock rose 98 cents, or 4.7 percent, to $21.69.

The dollar was mixed against other major currencies, while gold prices fell. Light, sweet crude fell 52 cents to $71.63 per barrel on the New York Mercantile Exchange.

The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the ``fear index,'' rose in early trading Thursday to its highest level since April 2003.

Declining issues outnumbered advancers by more than 4 to 1 on the New York Stock Exchange, where volume came to 1.92 billion shares.

The Russell 2000 index of smaller companies fell 8.61, or 1.08 percent, to 787.05.

Stocks finished lower in Europe. Britain's FTSE 100 lost 1.92 percent, Germany's DAX index fell 2.00 percent, and France's CAC-40 fell 2.17 percent after being down more than 3 percent. In other markets abroad, Japan's Nikkei stock average rose 0.83 percent and Hong Kong's Hang Seng index fell 0.43 percent.