Thursday, February 14, 2008

U.S. Stocks Drop, Led by Banks, Tech Companies; Intel Falls

By Eric Martin

Feb. 14 (Bloomberg) -- U.S. stocks fell for the first time this week after Federal Reserve Chairman Ben S. Bernanke warned that a scarcity of credit will restrain economic growth and analysts said Intel Corp. may be hurt by slower computer sales.

JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. led declines in 29 of 30 members of the Standard & Poor's 500 Diversified Financials Index. Intel, the world's largest chipmaker, dropped for the first time in six days. All 10 industry groups in the S&P 500 declined, halting the market's longest rally of the year.

The S&P 500 decreased 18.35 points, or 1.3 percent, to 1,348.86. The Dow Jones Industrial Average slid 175.26, or 1.4 percent, to 12,376.98. The Nasdaq Composite Index lost 41.39, or 1.7 percent, to 2,332.54. About five stocks declined for every one that rose on the New York Stock Exchange.

``We're not in a robust, healthy economy,'' said Kurt Brunner, who helps manage $1.6 billion at Swarthmore Group Inc. in Philadelphia. ``It's been nice to see three up days in a row, but I don't think we're in a steady upward trend. You're still going to have pockets of weakness.''

Bernanke's comments added to concern that credit-market losses will spread beyond the financial industry after the world's largest banks and securities firms wrote down $146 billion since the beginning of 2007. His warning overshadowed a drop in jobless claims and faster-than-expected Japanese economic growth that sent Tokyo's benchmark index to its biggest gain since 2002.

Banks Slump

The central bank's chairman indicated in testimony to Congress that policy makers are prepared to reduce interest rates further as the economy continues to deteriorate.

Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. fell after Lehman Brothers Holdings Inc. reduced first- quarter earnings estimates for the three largest U.S. securities firms on concern they'll post further writedowns.

Goldman lost $3.62 to $176.56. Morgan Stanley dropped 61 cents to $42.62. Merrill slumped $1.46 to $50.72.

Citigroup, the largest U.S. bank, retreated 60 cents to $25.74. Bank of America, the second biggest, slumped $1.09 to $42.24. JPMorgan, the No. 3, shed $1.49 to $42.61.

Financial companies in the S&P 500 tumbled 1.9 percent as a group and contributed the most to the overall index's slump.

Intel's 'Downside Risk'

Intel dropped the most in the Dow average, falling 75 cents, or 3.5 percent, to $20.46.

``The key downside risk to our view is a significant deceleration in PC unit growth and lack of meaningful margin expansion,'' Goldman Sachs analysts including James Covello and Simon F. Schafer wrote in a report. The brokerage maintained its ``buy'' recommendation on the shares, saying Intel's fundamentals remain unchanged.

Nvidia Corp. plunged the most in more than three years, declining $4.41, or 16 percent, to $22.61. Nvidia, the world's second-largest maker of computer-graphics chips, may lose market share in parts of its personal-computing business faster than predicted, Morgan Stanley analyst Mark Lipacis wrote in a note to clients. The company's fourth-quarter results yesterday failed to top estimates by as much as he anticipated.

Micron, Novellus

Micron Technology Inc., the largest U.S. maker of memory chips, and Novellus Systems Inc. retreated after they were downgraded to ``sell'' from ``neutral'' at Goldman. Novellus, a maker of equipment that helps turn silicon wafers into computer chips, sank $1.04 to $23.67. Micron fell 22 cents to $7.17.

Liz Claiborne Inc. dropped the most in the S&P 500, falling $4.12, or 18 percent, to $18.31. The maker of Kate Spade handbags and Juicy Couture clothing fell the most in almost 10 years after 2007 profit decreased more than forecast on slower department- store sales.

UBS AG, Europe's largest bank by assets, slid the most in more than five years in U.S. trading after the subprime mortgage crash led to a record loss and Chief Executive Officer Marcel Rohner declined to predict whether the bank will return to profit this quarter. UBS's U.S.-traded shares dropped $3.05, or 8.3 percent, to $33.94.

UBS also won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, according to a person with direct knowledge of the situation. Merrill, the largest U.S. brokerage, is also reducing purchases, according to people with direct knowledge of the matter.

Auction-Rate Securities

Goldman and Citigroup are pulling back as well as they conserve capital because of losses suffered on securities tied to home loans and other debts. Interest from investors has also waned on concern that the financial strength of insurance companies backing the debt will weaken.

GMAC LLC, the auto and mortgage lender controlled by Cerberus Capital Management LP, may run into ``substantial difficulty'' if credit markets don't improve, said Stephen Feinberg, founder of the private-equity firm.

``If the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty,'' Feinberg wrote in a Jan. 22 letter to investors, a copy of which was obtained by Bloomberg News.

GMAC, the former financing arm of General Motors Corp., lost $2.3 billion last year as record U.S. home foreclosures led to an increase in bad loans and auto-lending profit declined.

The difference in yield between 10-year interest-rate swaps and Treasuries increased for a fourth straight day, rising as high as 76 basis points, the biggest in two months. Widening swap spreads suggest investor aversion to credit risk is increasing. In a swap, two parties agree to exchange fixed for variable-rate payments over a set period.

Bond-Insurer Rally

MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, gained the most in the S&P 500 after Moody's Investors Service said the companies are ``better positioned'' than rivals FGIC Corp. and Bermuda-based business insurer XL Capital Ltd. Moody's cut the credit ratings on FGIC's bond insurance units six levels to A3 from Aaa.

MBIA rallied 98 cents, or 8.4 percent, to $12.62. Ambac rose $1.16, or 12 percent, to $10.53.

Comcast Corp. rallied the most in five years, surging $1.43, or 8 percent, to $19.24. The largest U.S. cable television operator said fourth-quarter profit rose 54 percent, topping analysts' estimates. The company also said it will buy back $6.9 billion of its stock over two years and pay its first dividend in almost a decade.


Goodyear Tire & Rubber Co. gained $1.87, or 7.4 percent, to $27.19. The largest U.S. tiremaker posted fourth-quarter profit of $52 million, rebounding from a $358 million loss a year earlier, as it sold higher-margin tires and won more business overseas.

The Russell 2000 Index, a benchmark for companies with a median market value of $589 million, dropped 2.3 percent to 705.32. Allscripts Healthcare Solutions Inc. led losses, tumbling $4.12, or 27 percent, to $11.27. The maker of medical software reported fourth-quarter revenue of $73.4 million, trailing the average analyst estimate of $78.3 million.

Avis Budget Group Inc. rose the most since Jan. 24, adding $1.18, or 10 percent to $12.84. The third-largest U.S. rental-car company reported earnings excluding certain items that exceeded the average analyst estimate by 50 percent, according to Bloomberg data.

Hertz Global Holdings Inc., the second-largest U.S. rental- car company, gained 73 cents, or 5.4 percent, to $14.15.

Denny's Corp. dropped 55 cents, or 15 percent, to $3.03. The restaurant chain reported a 1.2 percent drop in sales at company- owned stores open at least a year and forecast a decline in 2008 revenue.

Level 3

Level 3 Communications Inc. lost the most since October, dropping 26 cents, or 8.9 percent, to $2.65. The unprofitable operator of long-distance phone networks was cut ``underweight'' from ``equal-weight'' by Morgan Stanley.

Japan's Nikkei 225 Stock Average jumped 4.3 percent, the most since March 2002.

Most traders expect Fed policy makers will trim the 3 percent target rate for overnight lending between banks by half a percentage point at their next meeting on March 18. Fed funds futures on the Chicago Board of Trade indicated a 68 percent chance the benchmark will be cut to 2.50 percent, the same odds as yesterday. The rest of the bets are for the target to be lowered to 2.25 percent.

The number of Americans filing first-time claims for unemployment benefits fell last week, the Labor Department said, while staying in a range consistent with a slowing job market. Initial jobless claims decreased by 9,000 to 348,000 in the week ended Feb. 9. The four-week moving average of claims, a less volatile measure, rose to the highest level since October 2005.

The U.S. trade deficit shrank more than forecast in December and showed the first annual drop since 2001 as the faltering economy eroded demand for imported autos and Chinese-made consumer goods, the Commerce Department said.

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