U.S. Stocks Fall Hard As Oil Gains And Financials Get Hit Again

NEW YORK (MarketWatch) -- U.S. stocks on Monday were on the defensive as oil prices rose and as a handful of earnings reports, including a sharp profit drop posted by Tyson Foods Inc., eclipsed cheer over a rescue plan for mortgage giants Fannie Mae and Freddie Mac nearing enactment

"U.S. equities succumbed to selling pressure after crude oil forged a rebound back above $124 a barrel and with the financial sector still vulnerable after a couple of fresh bank failures, despite the new federal umbrella for the housing GSEs and mortgage sector," said analysts at Action Economics.

The Dow Jones Industrial Average declined 178.55 points, or 1.6%, to 11,192.14, with all but two of its 30 components trading lower.

Financial stocks were among the blue chips hit the hardest, with American International Group Inc. down the most, off 7.5%.

Also lower was Dow component Verizon Communications Inc. , shares of which fell 2.3%. The telecom carrier said second-quarter profit climbed 12%, but revenue came up short of expectations. .

Shares of General Motors Corp. also weighed on the Dow, with the world's biggest automaker slumping more than 6% as Toyota Motor Corp. warned its full-year sales results are likely to fall shy of past targets. .

Alcoa Inc. fronted the limited blue-chip gains, its shares recently up 0.6%. Shares of Chevron Corp. managed a fractional advance.

The S&P 500 declined 11.14 points, or 1.2%, to 1,243.63, with the consumer-discretionary and financial sectors leading the declines -- down 2% and 1.9%, respectively.

Large U.S. home builders also ranked among the laggards, with shares KB Home and Lennar Corp. both sliding about 6%, while Centex Corp. fell 4.5%.

The energy sector was up the most, rising 1.8%, followed by utilities, up 0.4%.

The Nasdaq Composite shed 23.12 points, or 1%, to 2,287.41.

Volume neared 583 million shares on the New York Stock Exchange, and declining issues pushed ahead of advancers by a margin of more than 2 to 1. On the Nasdaq, more than 425 million shares changed hands, and decliners outpaced advancers 2 to 1.

The Senate on Saturday voted final congressional approval for the mortgage-relief measure that President Bush has signaled he would sign, but cheer over the pending legislation was offset by Friday's late seizure of two additional banks by federal regulators.

Wall Street's tentative tone came as crude oil resumed its climb upward and ahead of economic reports due later in the week.

In New York Mercantile Exchange action, oil futures rebounded after last week's sharp losses, with crude for September delivery lately up 44 cents at $123.70 a barrel. .

"Crude is extremely oversold and we would be looking for a technical bounce with initial resistance at $128 and more significant supply at $133," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

The dollar wavered between positive and negative turf. The dollar index , which measures the greenback against six major rivals, ticked down to a reading of 72.62 from 72.75 in London earlier and 72.81 in late North American trading Friday.

Food for thought

A big gainer to start the week was Amgen Inc. , shares of which rallied 12.2%.

Late Friday, the biotech bellwether said its experimental osteoporosis drug curbed the risk of fracture in post-menopausal women taking part in a large-scale trial. Amgen's due to report financial results after Monday's close.

Shares of Kraft Foods Inc. gained 4.5% after the maker of cheese and other food products reported better-than-expected quarterly profit and raised its outlook for the year.

However, Tyson Foods reported third-quarter net income fell 92% as grain costs jumped. Shares of the meat producer fell 5.8%.

In Europe, stocks fell as German consumer confidence dropped to a five-year low, with the pan-European Dow Jones Stoxx 600 off 0.5% .

Asian markets ended mixed overnight, with Shanghai-listed stocks advancing and Sydney shares on the decline. .

By Kate Gibson