Saturday, January 19, 2008

U.S. Stocks Decline, Led by Financial Shares; Sprint Tumbles

By Eric Martin

Jan. 18 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor's 500 Index to its biggest weekly loss in five years, on concern President George W. Bush's $150 billion plan to revive the economy will fail to prevent a recession.

American International Group Inc., Bank of America Corp. and Wachovia Corp. led financial companies to their lowest level since September 2003. Sprint Nextel Corp., the third-biggest wireless carrier, tumbled the most in more than 25 years on the New York Stock Exchange after losing more subscribers than analysts estimated.

The S&P 500 declined 8.06, or 0.6 percent, to 1,325.19 and is down 9.8 percent this year in its worst-ever start. The Dow Jones Industrial Average lost 59.91, or 0.5 percent, to 12,099.3. The Nasdaq Composite Index dropped 6.88, or 0.3 percent, to 2,340.02. More than three stocks fell for every two that rose on the NYSE.

``There's still a general malaise in the overall equity market, and even this may not be enough to keep us out of a recession,'' said Michael Mullaney, who helps manage $10 billion at Fiduciary Trust Co. in Boston. ``Part of the problem is that it's just not as much as was anticipated by the market.''

Stocks erased earlier gains after President Bush said a government plan to stimulate the economy should be about 1 percent of gross domestic product, or as much as $150 billion. It should include tax incentives for businesses and ``direct and rapid income tax relief for the American people,'' Bush said.

Weekly Drop

The S&P 500 lost 5.4 percent this week, its steepest tumble since July 2002. The Dow average declined 4 percent and the Nasdaq fell 4.1 percent.

Benchmark indexes had rallied earlier after General Electric Co. and International Business Machines Corp. said overseas growth helped overcome a U.S. economic slowdown.

AIG, the largest insurer, tumbled $2.22 to $52.05. Bank of America, the biggest U.S. bank by market value, lost 94 cents to $35.97. Wachovia slid $1.55 to $30.80.

The S&P 500 Financials Index lost 1.8 percent and is down 13 percent in 2008 after a 21 percent tumble last year.

Sprint plunged $2.87, or 25 percent, to $8.70. The third- biggest U.S. mobile-phone service provider will fire 4,000 employees to cut costs. Sprint also said it lost about 683,000 contract customers last quarter, bringing total losses to 1.2 million in 2007.

'Bear' Market

Benchmark U.S. indexes are approaching so-called bear markets, or declines of at least 20 percent. The S&P 500 and Dow average have both lost 15 percent from their Oct. 9 records, while the Nasdaq composite has tumbled 18 percent from an almost seven-year high on Oct. 31. The Russell 2000 Index, a benchmark for companies with a median market valuation of $504 million, is down 21 percent since its July 13 peak. Indexes from Hong Kong to Iceland have already entered bear market territory.

Bond-insurer stocks were lowered to ``neutral'' from ``overweight'' at Bank of America Corp., which cited slowing economic growth and rising potential for losses. The bank downgraded MBIA Inc., Ambac Financial Group Inc. and Security Capital Assurance Ltd. to ``neutral'' from ``buy.''

``The bond insurers are in the perfect storm,'' analysts including Tamara Kravec wrote in a note to clients today. ``We would place a high probability now on our worst-case scenario of losses versus a remote probability just six months ago.''

Ambac Credit Ratings

Ambac became the first bond insurer to lose its AAA credit rating after Fitch Ratings downgraded Ambac Assurance Corp. two levels to AA and said it may be cut further. Ambac also abandoned plans to raise $1 billion in capital after a 70 percent plunge in its shares in the previous two days. The stock lost another 4 cents to $6.20 today.

MBIA slid 67 cents, or 7.3 percent, to $8.55 after a 31 percent drop yesterday. Security Capital slid 17 cents to $1.65. Bermuda-based business insurer XL Capital Ltd. retreated $4.87 to $39.52.

Fannie Mae fell $2.85 to $32.15 after the biggest provider of money for U.S. home loans was cut to ``underweight'' from ``equal weight'' at Morgan Stanley on the risk of higher credit losses.

Schlumberger Ltd. dropped $2.99 to $79.52. The world's largest oilfield-services provider posted its smallest profit increase in 17 quarters because price cuts for gas-production services in North America undermined gains in Russia and the Middle East.

Under Armour Inc. fell $9.05, or 24 percent, to $28.01. The maker of athletic clothes forecast first-half profit that trailed analysts' estimates because of increased marketing costs.

GE, IBM Gain

GE added $1.10 to $34.31. The company said fourth-quarter profit from continuing operations increased to $6.82 billion, or 68 cents a share, as higher overseas sales of jet engines, power- plant turbines and locomotives helped compensate for slower U.S. economic growth. The results matched the average estimate in a Bloomberg analyst survey. GE sold its remaining U.S. subprime mortgages in the quarter as part of its exit from the business.

IBM rose $2.30 to $103.40 after the company gave its second upbeat report in less than a week, signaling overseas sales will help overcome the U.S. slowdown. Earnings will climb to as much as $8.30 a share this year, IBM said, topping the average estimate of $7.90 in a Bloomberg survey of analysts. The company also beat projections with its fourth-quarter results, which it previewed earlier in the week.

Chipmakers Rally

Advanced Micro Devices Inc. added 73 cents to $7.07. The second-largest maker of personal-computer processors reported a smaller loss than analysts estimated as it sold more higher- priced chips. Its fourth-quarter net loss widened to $1.77 billion, or $3.06 a share, because of $1.61 billion of expenses from the purchase of ATI Technologies Inc.

Micron Technology Inc., the largest U.S. maker of computer- memory chips, gained 38 cents to $6.44. The company won a case before the appeal board of the European Patent Office that keeps competitor Rambus Inc. from reinstating most of a patent for a memory-chip design.

Xilinx Inc. added $2.39, or 12 percent, to $21.53. The world's biggest maker of programmable semiconductors forecast fourth-quarter sales that may top estimates.

Computer-chip makers helped limit the market's decline, with a measure of the stocks climbing 1 percent, the third most among 24 industries in the S&P 500.

Raw-materials producers also gained after gold and copper prices rose. Freeport-McMoRan Copper & Gold Inc., the world's second-largest producer of copper, added $2.64 to $84.13.

Rate-Cut Bets

Fed funds futures on the Chicago Board of Trade show there is a 72 percent chance the central bank will trim its target for overnight loans between banks by 0.75 percentage point to 3.5 percent at its Jan. 30 meeting, up from 44 percent odds yesterday. The rest of the bets are for a half-point cut.

``The market continues to feel sick, anemic, weak,'' said Peter Kenny, a managing director in institutional sales at Knight Equity Markets in Jersey City, New Jersey. ``It's convinced it needs a lot more out of Washington, not only monetary easing but also fiscal help, and it may not be dramatic enough.''

The index of U.S. leading economic indicators fell more than forecast in December. The Conference Board's gauge, which points to the direction of the economy over the next three to six months, fell 0.2 percent last month, a third straight decline, the research firm said.

Consumer confidence unexpectedly rose in January, with the Reuters/University of Michigan final index of sentiment increasing to 80.5 from December's 75.5 reading that was the lowest since 2005. Economists forecast the index to fall to 74.5, according to a Bloomberg survey.

The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.6 percent to 13,308.47. Based on its decline, the value of stocks decreased by $101 billion.

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