Stocks Sharply Lower As Credit-fears Fed Sell-off

NEW YORK (MarketWatch) - Stocks on Friday took another dive, with the Federal Reserve joining other central banks in funneling funds into the markets for a second day to ease the flow of credit and quell fears about a global credit crunch.

"It's become a very emotional market. The great fear out there is, 'who's next?'" said Peter Cardillo, chief market economist at Avalon Partners.

The Dow Jones Industrial Average was down 191.8 points at 13,079, with 26 of its 30 components off. Alcoa Inc. led the Dow's declines, its stock dropping 5.5%.

The S&P 500 index fell 20.9 points to 1,432, while the Nasdaq Composite lost 49 points to 2,507.

"Talk of an emergency Fed meeting and rate cut is making the rounds this morning, not surprisingly, as fear overwhelms the markets," said analysts at Action Economics.

U.S. stocks already tumbled on Thursday, sending the Dow industrials down by nearly 400 points, as credit-related anxiety was revived after BNP Paribas, France's largest bank, said it had halted three funds with exposure to bad U.S. home loans.

Continuing the bad news trend on Friday, Countrywide Financial Corp. said its allowance for credit losses climbed 97% from the end of last year. Its stock was off 7%. The nation's largest home lender said trouble in the mortgage market seriously threatens its earnings and financial condition.

Of the Wall Street firms, Bear Stearns Companies Inc. was off 3.7%, Merrill Lynch Company Inc. fell 1%, Goldman Sachs Group Inc. declined 1% and Lehman Brothers Holdings Inc. dropped 0.6%.

Shares of Washington Mutual Inc. fell nearly 3.4% after the Seattle-based bank said liquidity in the secondary market for home loans and mortgage-backed securities has "diminished significantly."

And Accredited Home Lenders Holdings gained nearly 15% after saying it received most of the regulatory approvals needed to be acquired by Lone Star.

California Pizza Kitchen Inc. dropped 6.3% after the company's yearly earnings forecast came in at the low end of Wall Street expectations. Fellow restaurant operator Steak N Shake Co. was off 8.4% after it lowered profit guidance.

Graphics chip provider Nvidia Corp. declined 5.7%. It announced a 3-for-2 stock split and posted strong-than-forecast quarterly earnings.

Central banks act again

The Fed early Friday said it injected $19 billion into the banking system. The European Central Bank added another $83.6 billion, after Thursday's $130 billion injection, and the Bank of Japan on Friday added $8.5 billion.

The U.S. Federal Reserve on Thursday added $24 billion in temporary reserves, and Canada's central bank put $1.55 billion into the markets.

On Thursday, the Dow industrials finished with a 387-point loss, the Nasdaq Composite dropped 56 points and S&P 500 fell 44 points, prefacing a wave of selling overnight.

Rate cuts?

Fed fund futures are now pricing in an inter-meeting rate cut within the next week by the Federal Reserve, according to Merrill Lynch analyst Joseph Shatz.

Treasury prices rose early Friday, driving yields lower, as investors continued to eschew riskier assets and shift to the safety of bonds amid escalating credit-market worries. The 10-year Treasury note was up 8/32 at 100 3/32, its yield down to 4.739% from 4.787% late Wednesday.

Gold futures gained, recovering from a sharp drop the prior session, with the contract for December delivery up $2.90 to stand at $675.70 an ounce on the New York Mercantile Exchange.

Yet another wave of selling hit crude oil, as credit-market worries escalated. Crude for September delivery fell $1.21, or 1.7%, at $70.40 a barrel in early action.

Japan's yen traded broadly higher, with markets again rattled by credit-market jitters, while the dollar fell. The dollar was down 0.2% at 117.58 yen, while the euro was up 0.1% at $1.3674. The yen rallied againshigh-yielding currencies, up 1% vs. the New Zealand dollar and 0.9% vs. the Australian dollar.

Overseas stock markets performed poorly on Friday, with the Nikkei 225 down 2.4%, or over 400 points, in Tokyo, and the FTSE 100 losing 3.3% in London.

By Kate Gibson