U.S. Stocks End Sharply Down In Tracking Commodities

NEW YORK (MarketWatch) -- U.S. stocks fell heavily Wednesday, giving up an early effort to extend the market's best day in nearly five years, with commodity-related sectors leading the decline following the Federal Reserve's call against inflation.

"The bigger story is the big decline in commodities today -- one of the more subtle messages out of the Fed statement yesterday was a fair warning to commodity speculators," said William Knapp, managing director at New York Life Investment Management's Equity Investor's Group.

"Some of the air got taken out of the speculative bubble -- the sectors going down are the commodity-related ones, oil producers and miners," Knapp said.

After being up-and-down much of the session, the major indexes accelerated their losses as the session end neared, with the Dow Jones Industrial Average down 293 points, or 2.4%, to settle at 12,099.66.

Of the Dow's 30 components, all but one closed in the red, with the losses led by the likes of Chevron Corp. , off 4.9%, and Exxon Mobil Corp. , down 4.6%.

The sole blue chip to end higher proved the Coca-Cola Co. , which gained 0.9%.

The S&P 500 Index fell 32.32 points, or 2.4%, to 1,298.42, while the Nasdaq Composite Index slid 58.30 points, or 2.6%, to 2,209.96.

"Let it not be said that things have calmed down in the market. While Wednesday was not the most stressful day on the recent record, volatility remains the constant theme, said David Ader, U.S. government bond strategist, RBS Greenwich Capital.

Volume on the New York Stock Exchange topped 5.3 billion, with declining stocks edging ahead of those advancing more than 2 to 1. On the Nasdaq, 2.3 billion shares traded hands, and declining issues topped those advancing, also by a more than 2-to-1 ratio.

Commodities comedown

On the New York Mercantile Exchange, crude-oil futures were hit with their biggest daily loss since early 1991, with the contract for April delivery off $4.94 to close at $104.48 a barrel. .

Elsewhere on the NYME, gold prices suffered their worst one-day drop in nearly two years, with gold for April delivery, falling $59 to finish at $945.30 an ounce. .

Ahead of the opening bell, the Office of Federal Housing Enterprise Oversight said that it would reduce, but not eliminate, the excess-capital requirement, giving Fannie Mae and Freddie Mac more flexibility to buy and securitize loans.

Fannie shares closed up 8.8% while Freddie jumped nearly 14.9%.

"Even though the stock market rebounded Tuesday, I'm not sure it's bottomed out yet -- the best indicator of recovery is when the portfolio of financial-services stocks rebounds," said Narayanan Jayaraman, a finance professor at the Georgia Institute of Technology College of Management.

"The performance of Visa's IPO [Wednesday] also will reveal a lot about investor sentiment regarding the financial services industry," said Jayaraman.

Shares of Visa Inc. soared to settle 28.4% higher after their trading debut, as the credit-card giant laid claim to the largest initial public offering of stock in U.S. history.

Morgan Stanley climbed 1.4% after the investment bank reported a smaller than forecast fall in profit of 42%.

Other active issues included U.K.-based mining operator Rio Tinto PLC , off 8.1%

Tech talk

Nokia Corp. fell 10.4% after Sony Ericsson, the non-listed joint venture of Sweden's Ericsson and Sony Corp. , warned lower sales than anticipated would dent its first-quarter numbers. Ericsson shares were down 10.3%.

Apple Inc. fell 2.4%. The Financial Times reported that Apple is considering a plan to give customers free access to iTunes music in exchange for paying a premium for iPods and iPhones. .

And, Adobe Systems climbed 9% after forecasting second-quarter earnings above Wall Street estimates. .

Overseas, Asia markets put in a strong performance, with a 2.5% risefor the Nikkei 225 in Tokyo. .

Europe shares closed lower, with the pan-European Dow Jones Stoxx 600 index losing 1%. .

On Tuesday, the Dow industrials rose 420 points, the S&P 500 added 54 points and the Nasdaq Composite rose 91 points after Lehman Brothers Holdings Inc. and Goldman Sachs Group offered relief on earnings and the Federal Reserve cut interest rates by three-quarters of a percentage point.

By Kate Gibson