Friday, February 8, 2008

U.S. Stocks Drop on Credit Concern; Banks, Weyerhaeuser Fall

By Elizabeth Stanton

Feb. 8 (Bloomberg) -- U.S. stocks retreated, sending the market to its first weekly decline since mid-January, as concern that corporate defaults will increase outweighed gains in technology companies and commodities producers.

Bank of America Corp. and JPMorgan Chase & Co. led banks and brokerages to their steepest weekly drop in six years as indexes of corporate credit risk climbed to records. Weyerhaeuser Co., the largest U.S. lumber producer, fell to a 16-month low in New York after posting a loss. Declines were limited as Inc., Microsoft Corp. and Apple Inc. rose and higher oil and metals prices boosted energy and mining companies.

The Standard & Poor's 500 Index lost 5.62 points, or 0.4 percent, to 1,331.29. The Dow Jones Industrial Average fell 64.87, or 0.5 percent, to 12,182.13. The Nasdaq Composite Index increased 11.82, or 0.5 percent, to 2,304.85. Almost two stocks dropped for every one that rose on the New York Stock Exchange.

``There's going to be more writedowns, more problems,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at the Hartford in Hartford, Connecticut, during an interview with Bloomberg Television. ``It's hard to navigate a market like this.''

The S&P 500 snapped two straight weeks of gains after a report on Feb. 5 showed service industries contracted at the fastest pace since 2001. The index has lost 15 percent since its Oct. 9 record, while the Dow has fallen 14 percent from its all- time high the same day. The Nasdaq has slumped 19 percent since an almost-seven year peak on Oct. 31.

Credit Concern

JPMorgan lost $1.29, or 2.9 percent, to $43.82. Bank of America retreated $1.21, or 2.8 percent, to $42.16. An index of banks and brokerages in the S&P 500 fell 8.6 percent this week, its biggest weekly loss since September 2001.

The costs of insuring various forms of corporate debt against default using derivatives rose to records. Contracts on the benchmark Markit CDX North America Investment Grade Index jumped 5 basis points to 129.59, the highest since the index started in 2004, according to CMA Datavision in New York.

The Markit LCDX Series 9 index of leveraged buyout loan derivatives traded at 91.8, according to broker Phoenix Partners Group, matching the lowest since the latest series began trading in October. Banks sitting on $160 billion of unsold leveraged loans may have to write down more losses after a plunge in the value of the debt, according to Bank of America Corp. analysts.

`Crunch Is Intensifying'

``It tells you the credit crunch is intensifying,'' said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. ``A lot of this paper is sitting on bank balance sheets. There's further potential for more writedowns, and that constricts the supply of credit in other areas.''

The world's largest banks and brokerage firms have written down the value of debt and related products on their books by $146 billion since the beginning of 2007, according to data compiled by Bloomberg. The charges stem from the collapse of the U.S. subprime mortgage market.

A U.S. recession is now an even bet as job losses and the housing contraction jeopardize the longest-ever expansion in consumer spending, according to a Bloomberg News survey. The world's largest economy will expand at a 0.5 percent annual rate during the first quarter, capping the weakest six months since the last economic slump in 2001, according to the median estimate of 62 economists polled from Jan. 30 to Feb. 7.

Weyerhaeuser, a supplier to homebuilders, fell $2.37, or 3.7 percent, to $62.34 after reporting a fourth-quarter loss of $63 million amid the worst housing slump in a quarter century.

Insurers Slump

Insurers led an index of health-care companies in the S&P 500 to the third-biggest drop among 10 industries. The chairman of the Senate Finance Committee threatened yesterday to have Congress impose marketing rules on privately run health plans sponsored by Medicare, the U.S. program for the elderly and disabled. The chairman, Democrat Max Baucus of Montana, cited ``abusive'' sales tactics.

Aetna Inc. lost $1.26 to $50.70. UnitedHealth Group Inc. slipped 83 cents to $48.20. WellPoint Inc. slid 99 cents to $76.63.

Coventry Health Care Inc. lost $1.30, or 2.4 percent, to $53.94. The U.S. insurer that bought four medical plans last year said profit this quarter will be as low as 85 cents a share. Analysts expected 96 cents, the average estimate in a Bloomberg survey.

LifePoint Hospitals Inc., which runs rural hospitals, forecast 2008 revenue of $2.65 billion to $2.77 billion. Analysts estimated $2.79 billion, on average, in a Bloomberg survey. Its shares fell $2.09 to $24.95.

Tech Gains

Technology companies gained 1.3 percent as a group, rebounding from a 16-month low. Microsoft, the largest software company, added 44 cents to $28.56. Apple, maker of the iPhone and Macintosh computers, rose $4.24 to $125.48. Intel, the biggest chipmaker, climbed 22 cents to $20.27.

Fourth-quarter earnings increased 29 percent on average for the technology companies in the S&P 500 that have reported so far, the second biggest gain among 10 industry groups after telecommunications. Overall profits in the index fell almost 20 percent on average, with 367 members having released results, after financial companies such as Merrill Lynch & Co. and Citigroup Inc. posted record losses.

Buybacks Inc. gained $2.59 to $73.50. The world's largest Internet retailer said it plans to buy back as much as $1 billion of stock, replacing a $500 million repurchase plan started in April.

Companies have announced $57.2 billion in planned buybacks, 28 percent less than during the same period last year, according to Birinyi Associates Inc. S&P 500 members bought back an estimated $586 billion in shares last year, a 36 percent increase from 2006, according to Howard Silverblatt, senior index analyst at Standard & Poor's. The pace probably slowed in the fourth quarter to $138.6 billion from the third-quarter record of $171.9 billion, he added.

Technology companies have been the biggest buyers of their own shares over the past three years, accounting for almost 22 percent, according to Silverblatt. The companies have used buybacks to offset the effect of employees exercising options.

Cognizant Technology Solutions Corp. was the biggest gainer in the S&P 500, adding $4.56, or 17 percent, to $31.84. The computer-services provider to companies such as Aetna forecast first-quarter sales and profit that may top analysts' estimates.

McDonald's, Tiffany

McDonald's Corp. gained $1.18 to $55.64. The world's largest restaurant company said sales at locations open more than 13 months increased 5.7 percent in January, spurred by growth in Europe and Asia. The company books more than 40 percent of its sales outside the U.S., according to Bloomberg data.

Tiffany & Co. added $1.68 to $39.86 after forecasting a profit of $2.50 to $2.55 a share in the year that began Feb. 1, driven by international sales, which also account for about 40 percent of revenue.

Coca-Cola Co. rose 80 cents to $59.25. Bear Stearns Cos. analyst Justin Hott upgraded the world's biggest soda maker to ``outperform'' from ``peer perform,'' saying higher international sales will boost profit. Overseas sales make up about 72 percent of Coca-Cola's revenue.

Companies with large percentages of sales coming from overseas are benefiting from the appreciation of foreign currencies against the dollar and faster economic growth.

Monsanto Co. and Freeport-McMoRan Copper & Gold Inc. led materials producers to a 1.9 percent gain, the steepest in the S&P 500. The Reuters/Jefferies CRB Index of 19 commodities rose to a record, extending its gain in the past year to 24 percent. Monsanto, the largest maker of seeds, rose $5.99 to $109.92.

Freeport-McMoRan added 4.4 percent to $90.87. Barrick Gold Corp. gained 4.1 percent to $50.10. Gold futures climbed to within $5 of their Jan. 28 record $927.10 an ounce.

The Russell 2000 Index, a benchmark for companies with a median market value of $528.6 million, dropped 0.6 percent to 698.90. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.3 percent to 13,484.95. Based on its decline, the value of stocks decreased by $53.8 billion.

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