Stocks fall as economic reports, weak earnings, oil prices stir concerns about economy

2/29/2008

NEW YORK Stocks fell sharply Friday after a series of economic and earnings reports and a further rise in oil prices stoked concerns about the health of economy. The major stock indexes fell more than 1.5 percent, with the Dow Jones industrials giving up more than 250 points.

Investors were unnerved by disappointing quarterly results from American International Group Inc. and Dell Inc. And an index of regional business activity that Wall Street regards as a precursor to a broader report registered its weakest reading in more than six years.

Adding to Wall Street's list of worries, oil prices continued to stir concern about inflation after topping $103 per barrel overnight for the first time.

While stocks made sharp gains in the first three days this week even amid lackluster economic readings, the litany of concerns investors succumbed to Friday reflected the undercurrent of uncertainty that has kept Wall Street on edge for months.

"We really had to face a plethora of negative news," said Art Hogan, chief market strategist at Jefferies & Co. in Boston.

Hogan said while stocks had managed impressive gains for much of the week, Fridays have been difficult days for Wall Street in the past year or so since cracks began to appear in the credit markets and as concerns have emerged about the economy. Investors worry that unwelcome news might break on the weekends, causing selling pressure in the week's final session.

In early afternoon trading, the Dow fell 253.18, or 2.01 percent, to 12,329.00.

Broader stock indicators also fell. The Standard & Poor's 500 index dropped 28.40, or 2.08 percent, to 1,339.28, and the Nasdaq composite index declined 43.30, or 1.86 percent, to 2,288.27.

Bond prices rose sharply as stocks lost ground. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.54 percent from 3.67 percent late Thursday.

The dollar showed a slight rebound Friday after hitting a record low against the euro Thursday. The slide in the dollar has sent commodities prices soaring. Light, sweet crude fell 88 cents to $101.71 on the New York Mercantile Exchange after spiking to $103.05 overnight.

Over all, stocks have performed better in February than in January, when credit market turmoil took a heavy toll on the major averages. But disappointing earnings results released late Thursday cast a pall over the market and meant stocks would likely end the month on a wary note.

Insurer AIG announced a $5.29 billion quarterly loss after booking a big charge to account for its exposure to credit derivatives. The loss caught analysts off guard, as many had expected the company to report a profit.

Computer maker Dell posted a 6 percent decline in its quarterly profit, falling below analysts' expectations, and warned that its business could suffer from reduced customer spending.

AIG was the steepest decliner among the 30 stocks that make up the Dow industrials, falling $3.14, or 6.3 percent, to $47.01. Dell slid 81 cents, or 3.9 percent, to $20.06.

Bill Shultz, chief investment officer at McQueen, Ball & Associates, said AIG's report left investors uneasy about the prospect of further sizable write-downs of bad debt.

"Every time we get to a point where we think we've finished, another report comes out and says we're not done yet," he said.

He expects Wall Street will continue to proceed with "fits and starts" until investors sense that the bad debt from faltering mortgages has been accounted for and that balance sheets are on the mend.

Some relief for the ailing bond insurance industry is on the way, though the news did little to dislodge Wall Street's glum mood Friday. Billionaire investor Wilbur Ross agreed to invest up to $1 billion in Bermuda-based reinsurer Assured Guaranty Ltd. Assured Guaranty rose $2.32, or 10.2 percent, to $25.10.

In economic news, the Chicago purchasing managers index for February came in at 44.5, a weaker reading than the 48.5 that had been expected, according to Dow Jones Newswires. The report indicated the factory sector is shrinking in that region. The figure is seen as a precursor of the national Institute for Supply Management report expected Monday.

The Reuters-University of Michigan final consumer sentiment reading for February came in at 70.8, better than the figure of 69 that had been expected. Still, the index was well off the level of 78.4 seen in January.

A government report showed that personal spending, when stripping out the effects of inflation, stood unchanged in January. The findings offered support to the notion that consumers are more hesitant to reach into their wallets amid the uncertainties facing the economy.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 797.6 million shares.

The Russell 2000 index of smaller companies fell 12.54, or 1.67 percent, to 693.18.

Overseas, Japan's Nikkei stock average closed down 2.32 percent. Britain's FTSE 100 closed down 1.36 percent, Germany's DAX index fell 1.67 percent, and France's CAC-40 fell 1.67 percent.

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