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U.S. Stocks Point Lower Amid Bank Fears PDF Print E-mail
Wednesday, 16 July 2008

AP, NEW YORK  -- Stocks were knocked lower again Tuesday as investors grappled with escalating instability in the financial sector and sobering comments from Federal Reserve Chairman Ben Bernanke. The Dow Jones industrial average fell about 180 points.

Bernanke told Congress the U.S. economy is faced with ''numerous difficulties,'' such as strains in financial markets, a shaky job market and ongoing weakness in the housing market.

These difficulties -- which are persisting despite the Fed's massive interest rate cuts and expanded lending efforts -- represent ''significant downside risks'' to economic growth, the Fed chief said.
U.S. officials' comments come only days after the Fed and the Treasury said they would lend financial support to mortgage financiers Fannie Mae and Freddie Mac if necessary. The well-being of the government-chartered companies has drawn Wall Street's attention in recent weeks as the companies together hold or guarantee more than $5 trillion in mortgages -- nearly half the nation's total.
Fannie and Freddie shares tumbled again Tuesday, along with most other financial stocks.
Investors are also nervous after a run on IndyMac Bancorp Inc. led to the California lender's takeover by the government Friday. IndyMac became the largest regulated thrift to fail.
In midmorning trading, the Dow Jones industrial average dropped 180.51, or 1.63 percent, to 10,874.68.
Broader stock indicators also sank. The Standard & Poor's 500 index fell 23.46, or 1.91 percent, to 1,204.84, and the Nasdaq composite index fell 33.10, or 1.50 percent, to 2,179.77.
Treasury prices jumped as investors sought the safety of government-issued securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.79 percent from 3.86 percent late Monday.
Light, sweet crude fell $1.39 to $143.79 per barrel on the New York Mercantile Exchange.
In addition to the financial sector, Wall Street is concerned about U.S. consumers, who are monitoring their budgets more carefully in the face of higher energy prices, falling home values and an uncertain jobs climate.
The Commerce Department reported Tuesday that retail sales edged up by 0.1 percent -- a weaker amount than the 0.4 percent increase analysts expected in June. Total sales were dampened especially by plummeting sales at car dealerships.
Investors found little comfort in a Labor Department showing that core inflation at the wholesale level, which excludes energy and food prices, ticked up by just 0.2 percent. Overall wholesale prices jumped by a larger-than-expected 1.8 percent -- the biggest gain since November. For the past 12 months, wholesale prices including food and energy showed an increase of 9.2 percent, the largest increase since June 1981.
Wachovia Corp. fell $1.44, or 15 percent, to $8.39, after Oppenheimer Co. analyst Meredith Whitney downgraded Wachovia, citing a ''very real scenario'' of declining assets and rising losses.
Fannie Mae fell 2.55, or 26 percent, to $7.18, and Freddie Mac fell $2.28, or 32 percent, to $4.83.
In corporate news, General Motors Corp. announced plans to lay off salaried workers, reduce truck production, suspend its dividend and borrow $2 billion to $3 billion as it adjusts to a declining U.S. market. GM shares fell 48 cents, or 5.1 percent, to $8.90.
Johnson & Johnson said its second-quarter earnings rose 8 percent as sales increased for consumer health items and surgical and diabetes products. The health care company's earnings before a charge for an acquisition totaled $1.18 per share. Analysts, on average, expected the company would earn $1.12 a share before items. Johnson & Johnson shares rose $1.24 to $67.61.
The Russell 2000 index of smaller companies fell 14.16, or 2.13 percent, to 650.34.
Declining issues outnumbered advancers by about 10 to 1 on the New York Stock Exchange, where volume came to 353.86 million shares.
Overseas, Japan's Nikkei stock average fell 1.96 percent. In afternoon trading, Britain's FTSE 100 fell 2.60 percent, Germany's DAX index fell 2.91 percent, and France's CAC-40 fell 2.54 percent.

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