Stocks Drop After Ambac Financial Tries To Fend Off Downgrade

NEW YORK (MarketWatch) -- U.S. stocks on Wednesday afternoon shed gains to drop into negative territory after troubled bond insurer Ambac Financial Group said that it would sell $1.5 billion of common stock and equity units in an effort to fend off a downgrade of its AAA rating.

"All they are doing is keeping the status quo; all they did was buy themselves some time," said Peter Boockvar, equity strategist at Miller Tabak.

Up more than 100 points earlier, the Dow Jones Industrial Average was recently down 48.20 points to 12,165.60.

Of the Dow's 30 components, 20 fell, with financials fronting the declines.

The S&P 500 Index dropped 3.74 points to 1,323.01 and the Nasdaq Composite Index shed 2.47 points to 2,257.78.

Reports of a prospective bailout of Ambac was back on the table fueled a late-day rally Tuesday, pulling U.S. stock indexes off earlier lows.

Ambac shares were down nearly 14%.

Volume on the New York Stock Exchange topped 615 million, and advancing stocks outran those declining more than 2 to 1. On the Nasdaq, 448 million shares were exchanged, and advancing issues overtook those declining nearly 3 to 2.

On the New York Mercantile Exchange, crude futures soared more than 4% to set a new record of $104.56 a barrel after data showing U.S. inventories fell. In more recent action, oil was up $4.43 at $103.95. .

Elsewhere on the NYME, gold futures also set a new record, climbing to $993.30 an ounce, and more recently up $22.60 to $989.40. .

Active issues

Technology stocks were largely on the rise, with bellwether Cisco Systems Inc. edging up after Chairman and Chief Executive John Chambers expressed increased comfort with the networking titan's longer-term growth prospects.

Also, Yahoo Inc. gained 2.5%. The online giant, facing a hostile takeover attempt by Microsoft Corp. , extended its deadline for nominating directors to its board.

Costco Wholesale Corp. was down nearly 1.6% after its report of 31% growth in quarterly profit met expectations, while Big Lots Inc. gained nearly 22% after reporting a 12% profit fall. .

Economic data

Early on, stock indexes had extended opening gains after the Institute for Supply Management reporting nonmanufacturing sectors of the U.S. economy contracted at a slower pace during February, with its index bouncing to 49.3 in February from 44.6.

"We had a pleasant surprise from ISM, which came in significantly higher than expected. The nonmanufacturing sector is about 85% of the U.S. economy," said Hogan.

The nation's private sector shed 23,000 jobs in February, according to an employment report based on ADP payrolls data. Adding in some 25,000 jobs typically created by government, the ADP report suggests nonfarm payrolls grew by about 2,000, compared with the 20,000 forecast by economists. .

Meanwhile, data tracking productivity in U.S. nonfarm businesses and unit labor costs -- a key inflation gauge -- were revised slightly higher in the fourth quarter from prior estimates. .

A separate report had the Commerce Department reporting a 2.5% January decline in factory orders. .

Overseas markets were split, with Asian stocks generally posting a flat performance, while stocks in Europe rose after five straight losses. .

By Kate Gibson