U.S. Stocks Drop On Bleak Bernanke Testimony

NEW YORK (MarketWatch) -- U.S. stocks were mostly lower Thursday as Federal Reserve Chairman Ben Bernanke painted a picture of an economy in a perilous position, fueling more credit concerns as retailers, including blue chip Wal-Mart Inc., reported disappointing sales.

In prepared testimony to the Joint Economic Committee of Congress, Bernanke said the economy faces risks from the housing market slump as well as a surge in inflation, the lower dollar and higher oil costs. .

"We would view this as an attempt by Bernanke to keep all of the FOMC [Federal Open Market Committee]'s options on the table for December," said Drew Matus, senior economist, Lehman Brothers.

"It appears that the financial markets are cherry picking those remarks to support hopes of further easing. However, Bernanke noted that data subsequent to the Oct. 31 rate cut have continued to suggest the overall economy has remained resilient," said analysts at Action Economics.

"Meanwhile, sharp increases in crude oil have put renewed upward pressure on inflation, and may impose further restraint on economic activity," Action Economics said.

The Dow Jones Industrial Average fell 2.8 points to 13,297.2, with 13 of its 30 components lower, with IBM fronting the slide, its stock down 3.5%.

The S&P 500 fell 2.96 points to 1,478.58, while the Nasdaq Composite fell 21.78 points to 2,726.98.

Investors seemingly brushed aside early economic data, with the government reporting the number of Americans filing for first-time jobless benefits fell by 13,000 last week to 317,000, its lowest level in a month. .

Volume on the New York Stock Exchange topped 527 shares, with advancers ahead of decliners roughly 3 to 2. On the Nasdaq, 937 million shares were exchanged, and advancing stocks ran ahead of those declining nearly 7 to 6.

Driven

Ford posted a third-quarter loss of $380 million, or 19 cents a share, less than a loss of 46 cents a share expected by analysts. Shares of the automaker gained about 2%.

Cisco Systems Inc. shares fell 6.7% after it reported late Wednesday a 37% increase in first-quarter profit yet still sparked concern with a forecast implying that it won't meet Street expectations for the current quarter. .

Within the Dow, shares of American International Group Inc. fell to lows not seen for more than a year. Late Wednesday, the insurance giant reported a 27% drop in third-quarter net income, with fallout from the subprime mortgage crisis pushing its results below expectations.

Morgan Stanley also offered bearish results late Wednesday, with the investment bank saying it would take another $3.7 billion hit to account for exposure to subprime-mortgage securities. .

"The markets' deep concern for credit and the companies that extend it is well-founded and isn't being ignored. The financial-services industry is going through some tough times, and that can't help but to extend to just about every corporation and household that borrows money," said Kevin Giddis, managing director for fixed income at Morgan Keegan & Co.

Wobbly retailers

Retailers offered mostly lackluster sales results for a second straight month, hurt by unseasonably warm October weather, record-high oil prices and consumer worries about the housing and credit markets.

Wal-Mart reported same-store sales rose 0.7% in October, less than the 1.1% hike anticipated by analysts.

Rival Target Corp. said same-store sales climbed 4.1% last month, topping expectations that called for a 2.5% rise.

Warehouse-club retailer Costco Wholesale Corp. reported a 9% jump in sale-store sales, topping the 5.7% consensus estimate of analysts polled by Thomson Financial.

Limited Brands Inc. said sales fell 6% last month, more than the 1.6% drop expected by analysts.

Elsewhere

Outside the U.S., global miner BHP Billiton Ltd. said it approached Rio Tinto PLC with an offer to buy its smaller rival, but Rio Tinto had rejected the proposed deal, which could be worth more than $110 billion.

In futures trading on the New York Mercantile Exchange, the benchmark crude-oil contract climbed 97 cents to $97.34 a barrel.

Gold futures rose sharply, with the contract for December delivery up $8.60 to $842.10 an ounce. .

The dollar fell as Bernanke's testimony highlighted risks to both economic growth and inflation. The dollar index, which measures the U.S. currency against a basket of key currencies, was down 0.2%. The euro rose 0.5% to $1.4694. .

Treasurys were mixed, with short-term yields falling and long-term yields rising. The benchmark 10-year note up 4/32 to 99 18/32, as its yield nosed up to 4.304%. .

Overseas, European shares were mixed, with losses in the banking sector keeping broader market sentiment in check. .

Asian markets skidded lower, with weakness in Hong Kong fronting the sell-off. .

By Kate Gibson