Thursday, December 27, 2007

U.S. Stocks Drop on Economic Concern; Citigroup, Merrill Fall

By Elizabeth Stanton

Dec. 27 (Bloomberg) -- U.S. stocks fell the most in a week after government reports on durable goods and unemployment heightened concern growth is slowing and an analyst predicted Citigroup Inc. will cut its dividend by 40 percent.

Hewlett-Packard Co., General Motors Corp., and Caterpillar Inc. dropped after orders for durable goods rose less than forecast. Citigroup, the biggest U.S. bank, fell to a five-year low after Goldman Sachs Group Inc. analyst William F. Tanona said it will cut its 54-cent dividend to preserve capital as the value of its assets declines.

The Standard & Poor's 500 Index lost 21.39, or 1.4 percent, to 1,476.27. The Dow Jones Industrial Average decreased 192.08, or 1.4 percent, to 13,359.61. The Nasdaq Composite Index retreated 47.62, or 1.8 percent, to 2,676.79. About seven stocks fell for every one that gained on the New York Stock Exchange.

``The economy is definitely weak, and we all know financials are still in the box,'' said John Kornitzer, who manages $6 billion at Kornitzer Capital Management in Shawnee Mission, Kansas. ``It's going to be a tough year.''

Stocks turned lower before the U.S. economic reports were released on concern the assassination of Pakistani opposition leader Benazir Bhutto will further destabilize the region.

Monsanto, Freeport

Financial companies were today's worst-performing industry in the S&P 500, followed by materials producers including Monsanto Co. and Freeport-McMoRan Copper & Gold Inc.

Orders for cars, aircraft and other items made to last several years rose 0.1 percent in November, compared with a median forecast of 2 percent in a Bloomberg survey of economists, as companies cut spending on capital goods. Separate figures from the Labor Department showed jobless claims unexpectedly rose last week. Treasuries rose for the first time in five days following the reports.

The S&P 500 has gained 4.1 percent for the year, while the Dow average has climbed 7.2 percent and the Nasdaq has advanced 11 percent.

General Motors slipped 46 cents to $26.06. Hewlett-Packard lost $1.16 to $51.61. Caterpillar retreated 96 cents to $72.73.

``The economy is slowing,'' said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $6 billion in San Antonio. ``It's one more point for those people who think we might be headed for a recession in the new year.''

Citigroup had the second-steepest drop in the Dow average, losing 89 cents, or 2.9 percent, to $29.56. Goldman's Tanona said the New York-based bank may write off $18.7 billion in debt securities, more than the analyst's Nov. 4 estimate of as much as $11 billion.

American Express Co. posted the steepest decline in the Dow average, losing $1.80, or 3.4 percent, to $51.10.

Bigger Loss Estimate

JPMorgan Chase & Co. fell $1.30 to $43.64. Tanona said the third-largest U.S. bank by assets may write off $3.4 billion in fixed-income securities, double Goldman's previous estimate, because of the collapse of the subprime mortgage market. Merrill Lynch & Co. may write off $11.5 billion, compared with an earlier estimate of $6 billion. Merrill, the world's largest brokerage, fell $1.34 to $53.20.

Falling home prices and the expiration of low teaser rates have rendered mortgages unaffordable for many homeowners, leading to an increase in foreclosures. The world's biggest banks and brokerage firms have reported combined losses and writedowns on assets including mortgage-backed bonds of $97 billion this year.

The S&P 500 has lost 3.3 percent this quarter, heading for its first quarterly decline since the three months ended June 2006.

Bhutto's Assassination

Bhutto was assassinated in an election-rally attack in Rawalpindi, threatening the stability of a nuclear-armed nation that is a focal point of the West's war on terror. Rioting broke out as her supporters gathered outside the hospital where her death was confirmed and in cities across Pakistan.

Fannie Mae and Freddie Mac, the largest U.S. sources of money for home loans, rose after their regulator said they met their capital requirements in the third quarter. Freddie Mac rose the most in the S&P 500, climbing $1.28, or 4 percent, to $33.70. Fannie Mae was the second-biggest gainer, adding 81 cents, or 2.1 percent, to $39.61.

SLM Corp. fell the most in the S&P 500, losing $2.48, or 11 percent, to $19.65, an almost seven-year low. The biggest provider of student loans plans to sell $2.5 billion of stock to raise money for settling contracts to buy back existing shares.

Fall From Record

Energy companies in the S&P 500 fell from a record, their first drop in seven trading days, even as crude oil rose 0.7 percent to $96.62 a barrel in New York after an Energy Department report showed that U.S. inventories fell more than expected. Futures closed at a record $98.18 a barrel on Nov. 23.

Gold rose a fourth day after energy costs jumped, boosting the appeal of the precious metal as an inflation hedge. Futures increased 0.3 percent to $831.80 an ounce on the Comex division of the New York Mercantile Exchange.

Barrick Gold Corp., the world's largest producer of the metal, rose 36 cents to $40.28.

The Russell 2000 Index, a benchmark for companies with a median market value of $594.8 million, dropped 3 percent to 773.51. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 1.5 percent to 14,895.77. Based on its decline, the value of stocks decreased by $287.7 billion.

Barrick Gold Corp. (ABX US)
Caterpillar Inc. (CAT US)
Citigroup Inc. (C US)
Fannie Mae (FNM US)
Freddie Mac (FRE US)
Freeport-McMoRan Copper & Gold Inc. (FCX US)
General Motors Corp. (GM US)
Hewlett-Packard Co. (HPQ US)
JPMorgan Chase & Co. (JPM US)
Merrill Lynch & Co. (MER US)
Monsanto Co. (MON US)
SLM Corp. (SLM US)

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