U.S. Stock Declines Deepen On Sentinel Woes

NEW YORK (MarketWatch) -- U.S. stocks fell sharply Tuesday after Wal-Mart Stores Inc., the world's largest retailer, lowered its earnings forecast and a futures broker moved to stop withdrawals, exacerbating worries about a credit squeeze.

"It is a problem in the asset-backed commercial paper market that is causing the new concern now - that is the new leg to drop," said Peter Bookvar, equity strategist at Miller Tabak.

The Dow Jones Industrial Average was down 164 points at 13,072, as 28 of its 30 components fell, led by big drops in shares of Wal-Mart and Home Depot.

"Wal-Mart's lowered guidance heightened our fear of a consumer spending slowdown perhaps coming to fruition," said Art Hogan, chief market strategist at Jefferies & Co.

"The disappointment from Wal-Mart this morning put an end to the first bounce," Elliot Spar, options/market strategist at Stifel Nicolaus & Co, wrote in a note.

The S&P 500 index declined 22 points to 1,430, and the Nasdaq Composite declined 37 points to 2,505.

Trading volumes showed 1.2 billion shares exchanging hands on the New York Stock Exchange and 1.3 billion trading on the Nasdaq stock market. Declining issues topped gainers by 13 to 3 on the NYSE, and by more than 2 to 1 on Nasdaq.

Broker/dealers and financials , along with airlines and metals miners , were among the sectors losing the most ground, while biotechnology was among the few sectors rising.

Another shoe

Sentinel Management Group, a firm that oversees about $1.5 billion, won't satisfy redemption requests from clients and has stopped accepting new money, CME Group, operator of the world's largest derivatives exchange said in confirming reports that prompted further unease on Wall Street.

Goldman Sachs Group Inc. fronted declines among brokerage stocks as investors tallied real and likely losses in the industry battered by a credit crisis and subsequent big losses at hedge funds the firms run.

Goldman Sachs was off 4.3%; Morgan Stanley fell 4.4% and Lehman Bros. declined 5.3%.

Consumer woes?

Wal-Mart cut its earnings outlook for the year, saying second-quarter performance was less than expected and many of its customers are under economic pressure. Its stock fell 5.2%.

Wal-Mart, like many of its rivals, has been battling a number of external issues putting a dent in consumers' budgets that include the housing slowdown, higher interest rates and a crunch on credit.

Home Depot reported a 15% profit decline and projected weakness in the housing market would extend into 2008. Its stock was off 3.8%.

Mattel Inc.'s stock slid 2.8% after the toy maker updated its recall list to include toys containing magnets that could kill a child if swallowed, and another on lead paint on a toy car model.

Brief tech respite

Technology shares originally received a lift on the public offering of EMC Corp.'s VMware Inc., with shares of the software spin-off climbing more than 80%.

"On the plus side is VMware, the largest technology IPO since Google Inc. , as it shows confidence in the sector," said Hogan.

But selling pressure eventually also overwhelmed the tech sector. Investors now await key earnings from tech bellwether Applied Materials Inc. after the close. Its stock was off 1.5%.

Rate cuts?

With the market worried about a credit crunch and economic growth, some investors are now hoping that the Federal Reserve will be able to cut interest rates sooner than later. Tuesday's data helped somewhat in that regard.

The Labor Department reported a larger-than-expected 0.6% increase in wholesale prices in July, led by a 2.5% rise in energy prices. But excluding food and energy, the core producer price index rose 0.1%, as expected.

And, the U.S. trade deficit narrowed unexpectedly by 1.7% in June to $58.1 billion, the Commerce Department said.

And helping to rekinde concerns about financial markets, UBS fell 3.9% after Europe's largest bank reported a 79% hike in second-quarter profit, but warned earnings in the second-half would be lower than last year.

Other markets

Crude-oil futures rose on worries over the impact of a potential tropical depression taking shape near the Gulf of Mexico, with crude for September delivery rising 76 cents, or 1%, to close at $72.38 a barrel on the New York Mercantile Exchange.

The U.S. dollar rose against international peers, following data showing worse-than-forecast euro-zone economic growth and slower-than-forecast U.K. inflation. The dollar was up 0.1% against the yen at 118.39 yen.

Gold futures closed slightly lower, with gold for December delivery falling $1.20 to $679.70 an ounce.

Treasury prices shook off losses and rallied on safe-haven flows after the report on money-market fund Sentinel Management surfaced. The benchmark 10-year finished up 7/32 at 100 4/32, with a yield of 4.732%.

On Monday, Wall Street reversed early gains to end slightly lower amid worries over when and where the next credit-related trouble would hit. The Dow industrials ended 3 points lower, the S&P 500 was down a fraction of a point and the Nasdaq Composite declined 2.6 points.

By Kate Gibson