Stocks Fall, Briefly Taking Dow Below 12,000

Wednesday, March 14th 2007, 7:05 am
By: News On 6

NEW YORK (AP) _ Wall Street turned mixed Wednesday, seeking direction a day after concerns about faltering subprime mortgage lenders sparked a broad selloff in stocks. The Dow Jones industrials briefly fell below the psychological 12,000 barrier for the first time since Nov. 6.

The Dow first traded above the 12,000 mark in October.

The market showed its continuing nervousness about soured loans among subprime lenders. H&R Block Inc. added to the uneasiness by announcing after the closing bell Tuesday its fiscal third-quarter losses would rise because of a $29 million writedown at its mortgage arm.

The anxiety over mortgage lenders, particularly the subprime lenders that make loans to people with poor credit, pushed the Dow down by more than 240 points Tuesday, its second-biggest drop in nearly four years. The pullback echoed a 416-point drop in the Dow seen two weeks ago that began in part after a nearly 9 percent drop in stocks in Shanghai and amid concerns about subprime mortgages.

``The market just can't get out of its own way right now. We traded down below 12,000, which is a psychological level and I think that is a pretty good move down,'' said Todd Leone, managing director of equity trading at Cowen & Co. ``I still think it's a healthy correction but the question is when do we stop?''

In early afternoon trading, the Dow Jones industrial average pulled off earlier lows, falling 42.62, or 0.35 percent, to 12,033.34. The Dow first traded above the 12,000 level on Oct. 18, after a meandering, 7 1/2 year journey from the 11,000 mark. During that time, Wall Street dealt with the dot-com bust, recession and the aftermath of the 2001 terror attacks.

Broader stock indicators were narrowly mixed Wednesday. The Standard & Poor's 500 index fell 2.45, or 0.18 percent, to 1,375.50, and the Nasdaq composite index rose 1.25, or 0.05 percent, to 2,351.82.

Bonds were little changed; the yield on the benchmark 10-year Treasury note remained at 4.50 percent from late Tuesday, while gold prices fell.

Light sweet crude fell 7 cents to $57.86 per barrel on the New York Mercantile Exchange.

Comments from OPEC Wednesday afternoon about its concerns for the U.S. housing market did little to alleviate investors' concerns.

``The OPEC comments kind of hit home that they're seeing demand slackening a little bit. They basically make comments to try to support the price level,'' said Larry Peruzzi, senior equity trader at The Boston Company Asset Management.

``It just seems like it's a weakening market and it's tough to jump in right now and want to buy this market with all the momentum that is going against it,'' Peruzzi said.

After Tuesday's big decline and before stocks moved lower Wednesday, the market appeared to have been awaiting further economic data _ notably Thursday's producer price index and Friday's consumer price index _ for signals about the economy's health and whether an interest rate cut might be in the offing. Lower interest rates would make access to capital cheaper and perhaps inject strength in the housing market.

The drop in U.S. stocks occurred as stocks in Europe closed sharply lower, apparently seeing little room for optimism U.S. markets would rebound. Britain's FTSE 100 fell 2.61 percent, Germany's DAX index lost 2.66 percent, and France's CAC-40 fell 2.52 percent. Japan's Nikkei stock average closed down 2.92 percent, while Hong Kong's Hang Sang index fell 2.57 percent and the sometimes volatile Shanghai Composite Index fell 1.97 percent.

The dollar, which was mixed against other major currencies, rose against the yen. Some observers have fingered the ascendent yen with contributing to the volatility seen in recent weeks on Wall Street. A rise in the yen against the dollar stirred concern of a reduction in the so-called yen carry trade, which occurs when investors use the yen to acquire higher-yielding assets elsewhere.

Following Tuesday's sobering declines in stocks, investors appeared to find little reassurance in a General Motors Corp. report that it turned a profit for the fourth quarter, its first since the first quarter of 2006. GM, which fell 59 cents to $29.29, benefited from a big gain from the sale of about half its stake in its General Motors Acceptance Corp. financing arm.

But trouble at GMAC's Residential Capital LLC real-estate financing business added to investor concern Tuesday after ResCap said it has struggled with a slower pace of loan originations and a further erosion in its subprime business.

H&R Block, the nation's largest tax preparer, said it would delay filing its annual report and that the reduced value of its mortgage business pushed its quarterly loss higher. The stock fell 43 cents, or 2.1 percent, to $19.62.

In economic news, the deficit in the broadest measure of foreign trade narrowed by 14.6 percent in the final quarter of 2006 to $195.8 billion, the smallest quarterly imbalance since the summer of 2005. A lower foreign oil bill took received some credit. For 2006, the Commerce Department said the current account deficit, which reflects not only trade in goods and services but also investment flows between countries, set a record for the fifth consecutive year.

The Labor Department said the prices of imported goods rose 0.2 percent in February when excluding oil prices. In January, import prices fell 0.9 percent.

Weighing in again with mortgage data, the Mortgage Bankers Association said Wednesday its weekly mortgage index, which measures mortgage loan application volume, rose 2.8 percent on a seasonally adjusted basis from the prior week. On Tuesday, the group's report that new foreclosures jumped to their highest-ever level in the fourth quarter of 2006 helped touch off the day's cavalcade of sell orders.

In other corporate news, Citigroup Inc. fell 12 cents to $48.63 after announcing plans to begin a tender offer for Nikko Cordial Corp. on Thursday after raising its offer for Japan's third-largest brokerage to quell shareholder opposition.

Lehman Brothers Holdings Inc., the fourth-largest U.S. investment house, credited robust trading and an expansion overseas with driving first-quarter profits. Lehman fell $1.62, or 2.2 percent, to $70.38.

The recent volatility in the U.S. markets, which perhaps normal, has drawn concern from some investors grown accustomed to the calm conditions since U.S. stocks began their steep climb in July. Even before Wall Street's recent uneasiness, volatility might have been expected to increase as the expiration of contracts for stock index futures, stock index options and stock options nears. Such expirations can bring volatility as investors try to square their options and futures orders.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 1.22 billion shares.

The Russell 2000 index of smaller companies rose 0.85, or 0.11 percent, to 769.95.