U.S. Stocks Thud Lower; Even Google Can't Keep Nasdaq Up

NEW YORK (MarketWatch) -- Wall Street sputtered quickly Friday, with earnings from Honeywell International Inc., 3M Co. and Caterpillar Inc. all weighing on the Dow industrials amid heightened anxiety fueled by crude oil's seemingly incessant rise.

"The story today is all about earnings, oil and also expirations," said Peter Cardillo, chief market economist at Avalon Partners.

"We were set for a pullback today, but clearly the news has been no help," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

"When Caterpillar said domestic weakness was outpacing global growth, and 3M -- one of the big market leaders -- comes in with numbers that only beat by a penny, where is all that global growth?" said Pado.

"High oil and housing are impacting the economy beyond what people thought if it's driving down consumer product-related companies," said Pado.

"Those two Dow components are at the head of why the market is weak, and option expirations may have made it worse."

The Dow Jones Industrial Average dropped 204.1 points, or 1.5%, to stand at 13,684.8.

Of the Dow's 30 components, 25 were trading in the red, with shares of 3M among the hardest hit -- down 6.7%.

The Dow's few advancing stocks were led by J.P. Morgan Chase & Co. , up 0.6%.

The S&P 500 shed 18.81 points to 1,521.27, while the Nasdaq Composite lapsed 36.51 points to 2,762.80.

Volume on the New York Stock Exchange hit 757 million shares, with declining stocks topping those advancing 4 to 1. On the Nasdaq, more than 1 billion shares changed hands, with decliners outpacing advancers nearly 3 to 1.

"This morning especially, what we've been seeing is the same old, same old concerns at the start -- the whole thing with oil, which hit $90 over concern over Turkey and northern Iraq, and the escalation of violence. Going into the weekend, we don't know what is going to happen," said Pado.

On the New York Mercantile Exchange, crude-oil futures tore through $90 a barrel for the first time ever, with the November-dated light-crude contract peaking at $90.07 a barrel before climbing down, recently trading at $88.57, off 90 cents. .

Mixed bag

Meanwhile, shares of Google Inc. , which vaulted to new highs in recent weeks and hit $600 for the first time earlier this month, climbed even further after the Internet search giant's quarterly results delivered against tall Wall Street expectations after Thursday's close. Google shares were recently up 1.4%.

Back among the blue chips, shares of Honeywell fell 2.3%. The company reported 14% growth in third-quarter earnings and raised its outlook for the full year.

Fellow Dow component Caterpillar cut its 2007 profit target, citing "severe weakness" in key U.S. markets. The equipment maker reported a 21% rise in third-quarter earnings.

Another blue chip, McDonald's Corp. posted a 27% hike in quarterly profits, with the fast-food chain's bottom line supported by strong sales in Asia and the weak dollar.

Outside the Dow, Xerox Corp. said third-quarter net income fell 53%, but earnings and sales topped expectations. Its shares were off 0.7%.

Focus back on financials

Also, shares of Wachovia Corp. as the company reported third-quarter earnings that fell 10%. The bank booked a $1.3 billion write-down from disruption in the fixed-income markets. .

Capital One Financial Corp. late Thursday reported that it swung to a third-quarter loss of $81.6 million, or 21 cents a share, from a profit of $750.4 million, or $1.89 a share, a year ago. Shares traded down nearly 4%.

In another bearish development for the beleaguered financial sector, Massachusetts securities regulators are probing whether Bear Stearns Cos. improperly traded with two in-house hedge funds, according to a report in the Wall Street Journal.

After a week of write-offs from banks, Friday's decline is in art the result of a battle waged since August, pitting credit issues and housing on one side against sectors not directly impacted, such as technology.

But questions linger over the potential for spill-over into the overall economy, traders said.

UBS downgraded banking HSBC Holdings plc to neutral from buy, citing valuation as well as a likely slowdown in European growth in 2008.

In addition, The Wall Street Journal reported the U.K. banking group is being sued by U.S. real-estate fund Luminent Mortgage Capital Inc. over allegations the bank's U.S. mortgage-trading operations took advantage of the recent credit crisis to profit at the fund's expense.

Former Federal Reserve chief Alan Greenspan said the "Super SIV" fund could have serious repercussions, according to an interview with the Emerging Market newspaper and posted on its Web site Friday.

In the article, Greenspan said the "Super SIV" -- the $75 billion Master Liquidity Enhancement Conduit proposed by Citigroup Inc. , Bank of America Corp. and JP Morgan -- runs the risk of further undermining already brittle confidence in besieged credit markets.

Added to the mix is a talk scheduled for later Friday by Fed Chairman Ben Bernanke. "The market will be paying very close attention to Bernanke," said Cardillo.

Treasurys continued to rise on increased expectations that the Fed will cut interest rates late this month. The benchmark 10-year Treasury note was up 23/32 at 102 24/32, with a yield falling to 4.403%.

By Kate Gibson