U.S. Stocks Fall; Dow Poised For Worst Start Of Year Yet

NEW YORK (MarketWatch) -- U.S. stocks on Wednesday extended the prior session's losses into 2008, with the Dow poised to record its steepest start-of-a-year drop yet, as spiking commodity prices and a measure of manufacturing activity furthered concerns about the economy.

"As we start off the new year, the first piece of economic data that catches our attention is a disaster, as it shows a slowdown in economic activity; this is no way to start a party," said Art Hogan, chief market strategist at Jefferies & Co.

Dow Jones Industrial Average was more recently off 269 points to 12,995.8.

Equities enjoyed a brief but short-lived lift after a summary of the Federal Open Market Committee's December meeting offered hopes for additional interest-rate cuts. .

Of the blue-chip index's 30 components, 29 remained lower, with technology stocks the hardest hit. Intel Corp. was down 5.2% and IBM dropped 3.3%.

Drugmaker Pfizer Inc. was the Dow's sole advancing issue, recently ahead 0.9%.

The broader indexes also remained lower. The S&P 500 shed 24.04 points to 1,444.32 and the Nasdaq Composite shed 48.72 points to 2,603.56.

The major stock indexes had posted modest gains at the start of the session, but quickly reversed course in the wake of data from the Institute of Supply Management, which reported its manufacturing index for December fell to 47.7, its weakest reading in more than four years. .

"The ISM was a poor number, showing more weakness in terms of manufacturing last month," said Peter Cardillo, chief market economist at Avalon Partners.

Also troubling was the prices-paid component, which climbed to 68 from 67.5. "We expected a decrease. It doesn't bode well for both the economy and the stock market," said Hogan.

Also tempering investor optimism was an early spike in crude oil that had futures rising above $98 a barrel, fueling concern about energy prices. Crude futures more recently were up $3.69 at $99.67. .

Gold futures also climbed, soaring to their highest level since 1980, with the contract for February delivery up $22.1 to close at $857 an ounce. .

The rise in commodities, along with the dollar extending its losses, "is certainly putting some jitters into the market. High inflation could lead to stagflation in the first quarter," said Cardillo.

Volume on the New York Stock Exchange hit 907 million, with declining stocks outpacing those advancing about 8 to 7. On the Nasdaq, nearly 1.4 billion stocks exchanged hands, and declining issues outran advancers 8 to 5.

On Monday, stocks fell amid worries about economic growth, with the Dow industrials losing 101 points, the Nasdaq Composite shedding 22 points and the S&P 500 losing 10 points.

Other developments included a Commerce Department report, which had spending on U.S. construction projects hitting a two-month high in November, rising 0.1% as opposed to the 0.5% drop predicted in a survey of economists.

Overseas, European stocks slipped. .

Shares of Amazon.com Inc. climbed 3.8% after Citigroup raised its recommendation on the Web retailer from hold to buy.

The credit crunch continued to take its toll, with PHH Corp. , a provider of residential-mortgage and vehicle-fleet-management services, saying it had called off its plan to be acquired by General Electric Co.'s GE Capital financing unit. .

In the tech sector, Advanced Micro Devices was downgraded to sell at Banc of America Securities on worries about its position in servers as well as growing costs.

And Qualcomm said a judge ruled that it violated certain Broadcom patents and ordered it to stop making and selling certain cell-phone chips.

By Kate Gibson