U.S. Stocks Revert Lower; Credit Worries Back

(MarketWatch)  NEW YORK (MarketWatch) -- U.S. stocks turned lower Tuesday afternoon, as concerns about credit markets and bad-home loans resurfaced with news that American Home Mortgage might liquidate its assets after failing to meet margin calls.

"Much like yesterday, we're feeling a bit of a rebound from oversold markets from last week, with the drivers today (both) positive economic data and positive corporate news," said Art Hogan, chief market strategist at Jefferies & Co.

After surging more than 120 points early on, the Dow Jones Industrial Average was 50.8 points lower, at 13,305.5.

Of the Dow's 30 components, 20 declined.

Given the market's massive drop last week, it's no surprise that doubt lingers, said Al Goldman, chief market strategist at AG Edwards. "After the emotional shock to the system that we had Thursday and Friday, it would be very unusual to have it go back up and away," he said.

The S&P 500 and the Nasdaq 100 were 4.71 points lower, at 1,469.54 and off 15.81 points at 2,568.67, respectively.

Volume hit 1.4 billion shares at the New York Stock Exchange, while 1.9 billion shares were traded at the Nasdaq.

Advancing stocks outpaced decliners 19 to 13 at the NYSE, and decliners beat advancing stocks 15 to 14 on the Nasdaq.

Cast offs

On Monday stocks managed solid gains, casting off the gloom that caused the major averages to register stiff losses the week before. The market on Monday got a lift from some soothing news in the financial sector, including Citadel Investment Group's agreement to buy troubled loans from Sowood Capital Management.

On Tuesday investors trained their attention to earnings and economic reports.

In welcome news for the stock market, the Commerce Department reported that core consumer inflation increased 0.1% for the fourth consecutive month in June, pushing the yearly gain in core inflation down to the lowest level in three years.

The core personal consumption price index rose 1.9% in the past year, the lowest inflation in three years, and just within the Federal Reserve's unofficial comfort zone of 1% to 2% for core inflation. Core inflation excludes volatile food and energy prices.

Signs that inflation is under control take pressure of the Federal Reserve to keep interest rates at higher levels.

Other stock-friendly news included the Conference Board's report that consumers were more positive about the economy and their own finances in July than at any time since 9/11.

Business activity in the Chicago region worsened in July, according to a survey of corporate purchasing managers. The Chicago purchasing-managers' index fell to 53.4% from 60.2% in June, with the number below economists' expectations.

Less stock-friendly was a rise in crude-oil futures above $78 a barrel, with the benchmark contract trading 10% higher for the month.

Yet, "the market doesn't seem to care about $78 oil as it helps the energy stocks in the S&P," said Elliot Spar, an option/market strategist at Stifel Nicolaus & Co.

Stocks on the move

Anadarko Petroleum Corp. was 3% higher. The company reported sharply above-forecast earnings and revenue, although earnings were below year-earlier levels.

Alcatel-Lucent , the world's largest maker of telecoms equipment, on Tuesday posted a steeper-than-expected second quarter loss on the back of lower sales and merger-related costs.

That stock fell 11%.

The Food and Drug Administration advised that GlaxoSmithKline plc.'s diabetes drug Avandia should stay on the market with a strong warning about increased risks of heart disease . That stock was 3.8% higher.

Shares of Dow Jones & Co. gained 12.4% on reports the company, which publishes this report, and News Corp. had sealed a deal on the sale of the publisher to the media giant.

Treasury yields climb

Treasury price losses lightened after the benign nflation news. The fixed-income market abhors inflation because it eats into the value of bonds. The benchmark 10-year note was off 2/32 at 97-18/32 with a yield of 4.816%.


The dollar traded little changed against other major currencies. In New York trade, the curo stood at $1.3699, compared with $1.3692 late Monday.

Gold futures extended the prior day's gains, boosted by rising oil prices and improved sentiment in the stock market. Gold for August delivery rose $3.90 at $668 an ounce on the New York Mercantile Exchange.


By Kate Gibson