U.S. Stocks Fall As Credit Worries Settle For Now
NEW YORK (MarketWatch) -- U.S. stocks fell Thursday, as traders locked in some gains, even as Bank of America Corp.'s $2 billion vote of confidence in Countrywide Financial Corp. eased worries about the survival of the country's biggest mortgage lender.
"We're seeing some profit-taking in response to market gains that we've seen since the end of last week," said Mike Malone, trading analyst at Cowen & Co.
"Both the news flow and sentiment has improved since the Fed's announcement on Friday, but despite that, we're not out of the woods yet," Malone said.
The Dow Jones Industrial Average fell 28 points at 13,207, with half of its 30 stocks in positive territory, led by Caterpillar Inc. , Hewlett Packard Co. and McDonald's Corp. , all of which rose about 1%.
The S&P 500 index fell 1.44 points to 1,462, while the Nasdaq Composite was off 10 points to 2,542.7.
Home Depot fronted the Dow's declines, with its stock down more than 2%.
A $10.3 billion deal to sell Home Depot's wholesale supply division may fall apart after three investment banks showed reluctance to finance the sale even under new terms, the Financial Times reported Thursday, citing people familiar with the negotiations.
More than 152 million shares exchanged hands in early trade at the New York Stock Exchange, with advancing stocks ahead of decliners 3 to 1. At the Nasdaq, 179 million shares were traded, with declining stocks outpacing advancers 7 to 5.
Countrywide help
In announcing its investment late Wednesday, Bank of America called Countrywide undervalued due to the current market "turmoil." Hammered during the broadening crisis in the home loan business, Countrywide's stock was up more than 6%.
"There's a belief in the credit markets that things have eased a bit," said Art Hogan, chief market strategist at Jefferies & Co.
"At least in the near-term a relative state of tranquility has settled into the markets as we wait for the next shoe to drop," Hogan said.
Bank of America's move is seen both as a means of helping Countrywide weather problems in the global credit markets, as well as preventing further losses at the mortgage lender from hurting the underlying economy.
Analysts at Bear Stearns didn't see the move leading to a full takeover.
"Bank of America executives have said repeatedly that they do not want to try to manage mortgage servicing rights assets exceeding $20 billion, as Countrywide must, given its business model," the broker said.
"We view this as an investment by Bank of America, on terms that could generate a significant profit for the bank, in a customer facing a liquidity squeeze which could have negative short-term implications for the U.S. financial system."
Deutsche Bank said the real estate finance sector would likely rally on the news, suggesting investors buy Redwood Trust .
More earnings came from the retail sector, with New York & Co. cutting its forecast, and Stein Mart reporting a 78% profit fall. After the close Gap reports quarterly results.
Fed's next move
U.S. stocks climbed Wednesday, lifting the Dow 145 points after Bank of America, Citigroup Inc. , JPMorgan Chase & Co. , Deutsche Bank AG, and Wachovia borrowed money from the Federal Reserve. Tapping the central bank for funds from the Fed would usually be viewed in a negative light, but the move came as a way of bolstering the financial system after the Fed cut its discount rate last week.
While the stock market is showing signs of stabilization, investors are also focused on whether the central bank would cut its policy rate either before or at the next Federal Open Market Committee meeting on Sept. 18. Some think the Fed will have to cut the benchmark lending rate between banks, which now stands at 5.25%, by at least a quarter point, by or at the FOMC gathering.
"We're going to be looking for enough negative conomic data to push the Fed over the edge to lower rates come Sept. 18," Hogan said. "That's a tough game to play, if you get too much of what you wish for."
Lehman Brothers said Wednesday that it's shutting its subprime-mortgage unit BNC Mortgage LLC and firing 1,200 people, becoming the latest company to stop offering home loans to less-creditworthy borrowers.
Data
Ahead of Thursday's opening, the Labor Department's tally of jobless claims came in as expected, with the number of those filing for initial unemployment benefits for the week ending Aug. 18 falling by 2,000 to 322,000.
Other markets
Treasurys gave up some of their recent gains Thursday, as credit concerns abated.
On the currency markets, the dollar rose against the yen, but fell against the euro and British pound, as investors increased their appetite for risk overnight by resuming so-called carry trades.
Gold futures edged higher Thursday on the New York Mercantile Exchange.
Crude-oil prices headed higher, poised to break a three-session losing streak on the back of strength in gasoline, which saw a steep decline in weekly U.S. supplies.
By Kate Gibson