U.S. Stocks Sink; Financial And Home-builder Shares Battered

NEW YORK (MarketWatch) -- U.S. stocks fell sharply Thursday, with the Dow Jones Industrial Average shedding nearly 300 points after two days of gains, as investors reacted to gloomy data on the housing sector and the job market.

"Jobless claims surged and housing continues to slump. This is not good news for the economy and has caused the fear trade to come back," said Kevin Giddis, managing director at Morgan Keegan & Co.

The Dow Jones Industrial Average dropped 283 points, or 2.4%, to end at 11,349, with 26 of its 30 components finishing in the red. Pacing the decliners, General Motors Corp. shares tumbled 11%.

Other laggards weighing on the blue-chip index included Citigroup Inc , down 9.8%, and Boeing Co. , off 6.3%.

The S&P 500 fell 29 points, or 2.3%, to 1,252, with the financial sector fronting the losses, down 7%. It was followed by consumer-discretionary issues, off 4%, and information technology, which lost 3%.

The economic news "provided a backdrop for the sell-off," said Paul Nolte, director of investments at Hinsdale Associates. .

Washington Mutual Inc. was among the hardest hit, with shares of the nation's largest thrift recently down 13%. The Seattle-based company, which late Tuesday reported a quarterly loss of $3.33 billion, is now down 32% so far this week. .

Auction-rate suit

UBS AG fell 7.1% after New York Attorney General Andrew Cuomo filed a lawsuit against the financial powerhouse, accusing the Swiss bank of misleading investors in selling auction-rate securities.

On the New York Mercantile Exchange, crude-oil futures gained $1.05 to end at $125.49 a barrel, on the heels of a dramatic pullback that had crude declining $20 during the past seven sessions. .

The Nasdaq Composite lost 45 points, or 2%, to 2,280.

Volume on the New York Stock Exchange topped 1.6 billion, and declining stocks outran those advancing more than 4 to 1. On the Nasdaq, 1 billion shares traded, and decliners outpaced advancers 2 to 1.

For sale

The major U.S. stock indexes deepened their decline after the National Association of Realtors reported sales of existing homes in June fell to their lowest level in a decade. .

Shares of home builders fell in the wake of the data, with Pulte Homes Inc. down 13.9% after the builder reported a quarterly loss of $158.4 million, and The Ryland Group Inc. fell 19.1% after the homebuilder late Wednesday reported a second-quarter net loss of $241.6 million.

"The list of reasons for the weakness is long," said Mike Larson, real estate and interest rate analyst for Weiss Research. "Consumer confidence is down. Unemployment is up. Mortgages are harder to get now that lenders have found religion. And the broader economy has been decelerating. We're also seeing long-term mortgage rates climb precipitously."

That climb had mortgage rates spiking this week, with the benchmark 30-year, fixed-rate loan soaring more than a quarter percentage point to a national average of 6.63%, its highest level in nearly a year, said Freddie Mac. .

Investors started the day with glum news after the government reported a large rise in first-time jobless claims, which jumped 34,000 to 406,000 in the week ended July 19. .

The economic data helped lift Treasury prices while denting stocks and the dollar, although some market observers downplayed the increase in initial claims.

"The auto retooling season is still making for some distortions in the data after the July 4 holiday, so we caution against putting too much emphasis on the numbers," said analysts at Action Economics.

At a hearing on Capitol Hill, Timothy Geithner, head of the Federal Reserve Bank of New York, said the financial system's ability to withstand stress should improve by the end of the year.

Active issues

Shares of Ford Motor Co. fell 15.3% after the company reported a loss of nearly $9 billion forthe second quarter, while Daimler AG , which still holds roughly a one-fifth share of Chrysler, fell 11% after it cut its outlook and reported a 25% drop in second-quarter profit.

Shares of Qualcomm Inc. soared 17% after the supplier of wireless components settled a long-running patent and royalties dispute with Nokia Corp. , shares of which also gained, up 2.2%.

Amazon.com also jumped, up 11.6%, after the online retail giant reported better-than-forecast second-quarter earnings. .

Overseas markets were mixed, with the Nikkei 225 Average ending more than 2% higher in Tokyo but the German DAX 30 dropping 1.1% after the Daimler results.

By Kate Gibson