U.S. Stocks Hit By Retail Report, Questions About Lehman's Fate
NEW YORK (MarketWatch) -- U.S. stocks fell steeply on Friday after a two-day winning streak, as an unexpected drop in retail sales and high anxiety over the fate of investment bank Lehman Brothers Holdings Inc. weighed on investors' sentiment.
"The U.S. economy is weak and likely getting weaker," said Kevin Giddis, managing director, Morgan Keegan & Co. Inc. "There seems to be no end to the shoes that keep dropping around the financial-services companies -- obviously we are dealing with an octopus -- and we just aren't sure who is next."
The Dow Jones Industrial Average shed 107.23 points to 11,326.48, with 23 of its 30 components posting losses, led by American International Group Inc. , down 20.4%.
AIG is among the companies thought to be holding mortgage-backed debt that has plagued the industry for more than a year, said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
The S&P 500 fell 6.34 points to 1,242.71, with information technology, consumer discretionary and the financial sector all falling more than 1%.
Energy, materials and utilities led gains among S&P's 10 industry groups.
The Nasdaq Composite declined 17.53 points to 2,240.69.
Volume on the New York Stock Exchange neared 293 million, with declining issues outrunning those advancing about 3 to 2. On the Nasdaq, 198 million shares exchanged hands, and decliners topped advancers nearly 2 to 1.
Financial follies
The market in large part is fixated on Lehman , as well as potential buyers of the embattled brokerage's assets. Bank of America Corp. is Lehman's "best hope," according to an article in the Wall Street Journal.
Lehman shares fell 11.61%.
Shares of Washington Mutual Inc. were down 1.1% after the company said late Thursday that it is well capitalized and that its provision for loan losses will drop to about $4.5 billion from $5.9 billion in the second quarter.
Goldman Sachs upgraded Washington Mutual to neutral from sell, saying the lender's capital is absorbing pain. Moody's Investors Service, however, cut its credit rating to below investment grade.
Stock indexes pared their losses after a reported rise in U.S. consumer sentiment in September. The University of Michigan/Reuters index climbed to 73.1 in September, its highest level so far this year.
Ahead of Wall Street's start, the Commerce Department reported a 0.3% decline in August retail sales, compared to the 0.4% gain expected by economists. .
Separately, the Labor Department said U.S. producer prices fell 0.9% in August, pushed lower in large part by declining energy costs. Core PPI prices, which exclude food and energy, gained 0.2% last month.
Gold rush
The economic data had Treasury prices extending gains, pushing two-year note yields down 4 basis points to 2.18%. .
The dollar index , which tracks the greenback against a trade-weighted basket of currencies, fell 0.6% to stand at 79.34. .
The steep fall in the dollar encouraged investors to buy gold after nine consecutive sessions of declines for the precious metal, with gold futures lately up $8 at $753.50 an ounce.
The greenback's weakness and worries that Hurricane Ike might disrupt energy production in the Gulf of Mexico propelled the price of crude higher, with the contract for October delivery up $1.93 to $102.80 a barrel. .
By Kate Gibson