U.S. Stocks Beat An Early Retreat, Playing Off FedEx Results

NEW YORK (MarketWatch) -- U.S. stocks on Wednesday dropped sharply for a second day as economic bellwether FedEx Corp. delivered disappointing results and Fifth Third Bancorp trimmed its dividend, respectively highlighting rising energy prices and the ongoing credit crisis.

"The banking sector will continue to garner its fair share of attention in the weeks ahead as we move through earnings or, perhaps more aptly, non-earnings season," said Kevin Giddis, managing director, Morgan Keegan & Co.

Losses at FedEx "offered a poor window into the health of the overall economy," said analysts at Action Economics.

The Dow Jones Industrial Average fell 126.03 points to 12,034.27, with 27 of its 30 components trading in the red.

General Motors Corp. led blue-chip declines, with shares of the automaker down 6.4%.

The S&P 500 declined 14.11 points to 1,336.82, with financials again fronting sector declines, off 2.4%.

The Nasdaq Composite dropped 28.65 points to 2,429.08.

As President Bush called for the lifting of a ban on offshore oil drilling, the Energy Department reported that supplies of crude fell 1.2 million barrels last week.

In energy trading, crude-oil futures were off 4 cents to $134 a barrel on the New York Mercantile Exchange. .

Volume on the New York Stock Exchange neared 322 million, and declining stocks outpaced those advancing nearly 4 to 1. On the Nasdaq, almost 215 million shares traded hands, and decliners topped advancers more than 2 to 1.

Dour delivery

Ahead of the bell, FedEx said it swung to a fourth-quarter loss, with the company -- often viewed as an economic bellwether -- pointing in part to the weak economy and the surge in fuel costs. .

The financial sector also weighed on market sentiment, with Fifth Third Bancorp saying it would cut its dividend and raise $2 billion in new capital. Shares of the regional bank tumbled as much as 18%. .

Shares of Morgan Stanley also sank, down 6% after the investment bank said second-quarter profit fell 60%, with the results reflecting the ongoing credit crunch and falling real-estate market. .

The market is in a consolidation phase, and it's unlikely to break out until next week's meeting of the Federal Open Markets Committee, said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

Pado downplayed the notion that central bankers would start hiking interest rates after a series of cuts. "Expectations are for the Fed to take a hard-line stance on inflation, but not go so far as to suggest that a rate hike is imminent. After all, there is little hope that a rate hike can change the action in crude, which is at the heart of this inflationary spike," Pado said.

On Tuesday, U.S. stocks fell sharply as a critical note on U.S. banks from Goldman Sachs sent investors running for the exits.

By Kate Gibson