U.S. Stocks Poised For More Steep Losses

NEW YORK (MarketWatch) - U.S. stocks headed towards another retreat Thursday amid data illustrating the deepening slump in the housing sector and word that Countrywide Financial, the nation's largest mortgage lender, was drawing on a $11.5 billion line of credit.

Futures for the Dow Jones Industrial Average were down 101 points at 12,820.

S&P 500 futures fell 13 points to 1,401, while Nasdaq 100 futures dropped 18 points to 1,860.

"This market is going down like free beer - we continue to have concerns on the credit side of the balance sheet, with Countrywide tapping an entire credit line to shore up its business," said Art Hogan, chief market strategist at Jefferies & Co. "I would say if there had been a day when we're trying to price in worst-case scenario, this might be it."

Ahead of the opening bell, the Commerce Department reported home builders in July started construction on the fewest number of new homes in more than a decade, with housing starts falling 6.1% to a seasonally adjusted annual rate of 1.381 million.

In other early data, the Labor Department said first-time applications for state jobless benefits climbed for last week for a third week in a row to their highest level since June 16.

Exxon fell 1.9% in Frankfurt on reports it suffered a contractual setback to increase output from the world's second-largest offshore field in Abu Dhabi.

J.C. Penney gave an upbeat update, reporting earnings above forecast and noting a good start to the back-to-school season. After the close, Hewlett-Packard reports results.

Countrywide which dropped 13% on Wednesday on a Merrill Lynch downgrade to sell, said it would draw on an $11.5 billion credit facility. Countrywide shares dropped 11% in pre-open trading.

The European Commission may probe rating agencies including Moodys and the Standard & Poor's unit of McGraw-Hill on the fallout in credit markets, according to the Financial Times.

Amgen lost 3% in pre-open trading after its announcement late Wednesday that it would cut up to 14% of its workforce in response to a weakening market for two anemia-fighting drugs.

Late-day volatility again exerted downward pressure on U.S. stocks on Wednesday, with the S&P 500 losing entire year's gains. The Dow industrials fell 167 points, the S&P 500 fell 19.8 points and the Nasdaq Composite dropped 40 points.

Stocks worldwide dropped on Thursday, with losses from Korea to Turkey to Britain, in the wake of the unfolding credit-market downturn, started by problems in the U.S. subprime mortgage market.

St. Louis Fed President William Poole told Bloomberg News in an interview that only a calamity would justify an interest-rate cut.

U.S. Treasury Secretary Henry Paulson said the recent turmoil in the markets will hurt U.S. economic growth but won't prompt a recession since the U.S. economy is "strong enough to absorb the losses," The Wall Street Journal reported.

Other markets

Oil fell as traders shrugged off two major storms marking the start of the Atlantic hurricane season in favor of worries over an economic slowdown tied to hamstrung credit markets, trading down $1.70 at $71.63 a barrel on the New York Mercantile Exchange.

Treasury prices rallied, pushing yields lower, in response to the weak U.S. economic data, with the benchmark 10-year note up 14/32 at 100 21/32, its yield falling to 4.977%.

The dollar fell 1.3% at 114.67 yen, with the euro declined 0.03% at $1.3423.

Gold fell $6.90, or 1%, at $672.80 an ounce.

By Kate Gibson