U.S. Stocks Fall; Exxon, Freeport-McMoRan, Caterpillar Decline

By Lynn Thomasson

Dec. 17 (Bloomberg) -- U.S. stocks posted their biggest two-day drop in more than a month, led by energy companies and miners, on growing concern that the U.S. economy will slow.

Exxon Mobil Corp., the biggest U.S. oil company, and Freeport-McMoRan Copper & Gold Inc., the world's second-largest copper producer, declined on slumping fuel and metals prices. Micron Technology Inc., the biggest U.S. producer of computer- memory chips, fell the most in 11 weeks after an analyst forecast a wider loss. Caterpillar Inc. slid to the lowest since Nov. 27 after Morgan Stanley said construction-equipment sales will slow next year.

The Dow Jones Industrial Average sank 172.65, or 1.3 percent, to 13,167.2, marking its first back-to-back drops of more than 100 points since Aug. 15. The Standard & Poor's 500 Index slipped 22.05, or 1.5 percent, to 1,445.9. The Nasdaq Composite Index lost 61.28, or 2.3 percent, to 2,574.46. Five stocks dropped for every one that rose on the New York Stock Exchange. Benchmark indexes in Asia and Europe retreated.

``You're going to see tight credit markets result in lower economic growth,'' said Wayne Wicker, who helps oversee $31.5 billion as chief investment officer at Vantagepoint Funds in Washington. ``We're not going to have the ebullient times that we've had in the past.''

Today's retreat trimmed the S&P 500's gain for the year to less than 2 percent, while the Dow is up 5.7 percent in 2007 and the Nasdaq has gained 6.6 percent. Treasury notes rose for the first time in four days as a decline in global stocks fueled demand for the safety of government debt.

Exxon, Freeport

Exxon lost $1.29 to $89.89 after oil fell for a third day on concern inflation and subprime mortgage losses will reduce economic growth. Crude for January delivery retreated 64 cents, or 0.7 percent, to settle at $90.63 a barrel in New York.

Freeport-McMoRan tumbled $7.20 to $94.91, its biggest drop in a month, after copper fell to a nine-month low.

Micron Technology fell 48 cents, or 5.7 percent, to $7.89. The company's product prices have dropped below the cost of production because of an industry glut of dynamic random access memory chips, the main memory in personal computers, said Jefferies & Co. analyst John Lau.

Intel Corp., the world's biggest maker of computer chips, slumped 57 cents to $25.72. A gauge of semiconductor companies in the S&P 500 fell 2.1 percent as 17 of its 18 members declined.

Caterpillar Inc. decreased $2.23 to $71.16. Morgan Stanley cut the shares to ``underweight'' from ``equal weight.'' U.S. construction equipment volumes and prices will decline in 2008, analysts including Robert Wertheimer wrote in a note to client.

EBay, Amazon

EBay Inc., the largest Web-based auction company, and Amazon.com Inc., the biggest Internet retailer, slumped on signs holiday sales growth online is slowing. ComScore Inc., a research firm, said online spending from Nov. 1 through Dec. 14 rose 18 percent to $22.7 billion, trailing the firm's forecast for 20 percent growth in November and December and last year's 26 percent gain.

EBay fell 81 cents to $31.89. Amazon.com declined $3.99, or 4.5 percent, to $85.09, its steepest tumble since Nov. 9.

A jump in consumer prices and $70 billion in bank losses on mortgage-backed securities has spurred concern that the U.S. economy may slow as spending and borrowing decline. Through the first 11 months of this year, consumer prices rose at an annual rate of 4.2 percent. That's up from 2.5 percent for all of 2006 and, if maintained in December, would be the highest rate in 17 years.

`Further Shoes to Drop'

``We see the economy contracting'' on higher fuel costs and falling home prices, said David Darst, who manages more than $700 billion as chief investment strategist at Morgan Stanley Global Wealth Management in New York. ``We have some further shoes to drop as we unfold in '08.''

Bank of America Corp., JPMorgan Chase & Co. and U.S. Bancorp led financial shares to a fifth-straight decline, the longest losing streak in a month, after Citigroup Inc. lowered its recommendation on nine bank and said they face an ``increasingly difficult environment.''

Bank of America, the second-largest U.S. bank, declined 46 cents to $41.70. JPMorgan, the third-biggest, lost 67 cents to $44.53. U.S. Bancorp, the sixth-largest, slipped 87 cents to $31.81. Citigroup, the biggest U.S. bank, added 7 cents to $30.77. The S&P 500 Financials Index lost 0.9 percent.

Banks also fell after the Federal Reserve's plan to provide $20 billion in cash to the world's money markets failed to reduce the cost of borrowing in euros. The rate banks charge each other for three-month loans in euros stayed close to a seven-year high, rising 1 basis point to 4.95 percent, the European Banking Federation said. The Fed today conducted the first of four auctions of three-month cash designed to ease the shortage in lending markets.

M&A

Trane Inc. surged $8.04 to $45.24 after the maker of heaters and air conditioners agreed to be bought by Ingersoll- Rand Co. for $10.1 billion in cash and stock. Ingersoll-Rand will pay $36.50 in cash and 0.23 of a share for Trane, valuing the manufacturer at $47.81 based on the Dec. 14 closing price. The offer is 29 percent more than Trane's close that day.

Ingersoll-Rand posted its biggest loss in more than seven years and the top decline in the S&P 500, slumping $5.58, or 11 percent, to $43.60.

Grant Prideco Inc. jumped $6.45 to $53.91. National Oilwell Varco Inc., the largest U.S. maker of oilfield equipment, agreed to buy the smaller rival for about $7.4 billion to add sales of drilling pipes and bits. The company said it will pay a combination of cash and stock that values Grant Prideco at $58 per share, a 22 percent premium. National Oilwell tumbled $6.68, or 8.6 percent, to $70.69 for the second-biggest loss in the S&P 500.

Illinois Tool Works

Illinois Tool Works Inc. fell the most since 2002, slumping $3.41, or 6.1 percent, to $52.49. The maker of Duo-Fast nail guns cut its full-year profit forecast as acquisitions and lower-than expected sales in North America cut profits.

Bond insurers gained after Moody's Investors Service affirmed AAA credit ratings for Ambac Financial Group Inc. and MBIA Inc. Ambac, the world's second-largest bond insurer, gained the most since they began trading in 1991, rising $3.85, or 17 percent, to $26.66. The company has still lost 70 percent of its value this year. MBIA, the largest bond insurer, rose 94 cents to $28.54.

Economy Watch

Manufacturing in New York expanded at the weakest pace since May as orders for new business slowed and companies cut inventories. The New York Federal Reserve Bank's general economic index fell to 10.3 from 27.4 in November, the bank's Buffalo branch said, lower than the reading of 20 forecast by economists in a Bloomberg survey.

In other economic reports, the National Association of Home Builders/Wells Fargo index of builder confidence was 19 as forecast for a third month, matching the lowest since records began in 1985. Levels lower than 50 mean most respondents view conditions as poor.

The Russell 2000 Index, a benchmark for companies with a median market value of $566.6 million, fell 2 percent to 739.06. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, lost 1.6 percent to 14,555.08. Based on its decline, the value of stocks decreased by $297.1 billion.