Stocks tumble, face more volatility

Stocks took a dive on Friday, as traders and investors worried about the health of hedge funds and financial companies amid the struggling mortgage market.

Next week, the last of what has proved to be a difficult June, could see more volatility. The Federal Reserve will meet Wednesday and Thursday to discuss the economy and interest rates. Plus, there will be important reports on housing in the early part of the week.

On Friday the Dow Jones industrials lost nearly 186 points to 13,360. The Standard & Poor's 500 Index was off 19.6 points, 1.3%, to just under 1,503, and the Nasdaq Composite Index slumped 28 points, nearly 1.1%, to 2,589.

Among the reasons for the sell-off: Higher crude oil, which neared $70 a barrel in New York, and worries about rising interest rates.

The Dow was down 279 points, or more than 2%, for the week. The S&P 500 was down 2% as well, and the Nasdaq shed 1.4%.

The Dow's weekly loss was its biggest since the week of Feb. 26, when the average fell 533 points. For the month, the blue-chip index is also down about 2%.

• Video: Making sense of a difficult day

The market's biggest problem all day was concern over hedge funds that are invested in the nation's mortgage market.

Investment banking house Bear Stearns (BSC, news, msgs) said Friday that it was putting up $3.2 billion to stabilize one such fund. But it looked like it was abandoning a second fund, called the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

The fund had taken in roughly $650 million, borrowed an additional $6 billion and then speculated both on the long and short sides in securities backed by mortgages. Bear Stearns was down nearly 1.4% to $143.75, and most big financial stocks were lower. The Financial Select SPDR exchange-traded fund (XLF, news, msgs) was down 1.3% to $36.53. The fund is a mirror of the stocks in the S&P 500 financial sector. The sector represents more than 22% of the market capitalization in the S&P 500.

Merrill Lynch (MER, news, msgs) was down 3.2% to $84.48. Morgan Stanley (MS, news, msgs) slumped 3.1% to $84.60, and Goldman Sachs (GS, news, msgs) fell 2% to $222.40.

The hedge fund mess hit housing and real estate investment trust shares as well.

The Philadelphia Housing Sector Index ($HGX.X) fell 1.7% to 218.24. Pulte Homes (PHM, news, msgs) fell 2.3% to $23.80. D.R. Horton (DHI, news, msgs) was off 1.7% to $20.85. Meanwhile, the MSCI U.S. REIT Index ($RMZ.X) fell 0.5% to 1,009.52. The index was down nearly 4.3% on the week and is off 9.2% for the month as higher interest rates took their toll.

The losses overshadowed the first day of trading for buyout firm Blackstone Group (BX, news, msgs). Units in the group jumped 13.1% to $35.06 on the first day of trading. The company went public Thursday night even as some Democrats in Congress proposed removing some of the tax breaks that Blackstone gets

• Video: A war on the rich?

Only one of the 30 stocks in the Dow was higher on the day. -- DuPont (DD, news, msgs) -- along with just 53 stocks in the S&P 500.

DuPont's gain was all of a nickel to $52.30. Twenty-two Dow stocks had losses of greater than 1% with Microsoft (MSFT, news, msgs) and Intel (INTC, news, msgs) the laggards, down 2.4% each to $29.49 and $23.70, respectively. (Microsoft is the publisher of MSN Money.)

Of 41 indexes that Market Dispatches tracks, only the Philadelphia Oil Service Sector Index ($OSX.X) showed a gain on Friday, 1.1% to 271.58. For the week, the index was up 2.2% and is up 8.2% in June.

What started the selling was crude oil's jumping up to $69.50 a barrel, although the gains were pared back to $69.14, up 49 cents from Thursday.

There was additional concern about the recent increase in interest rates. The 10-year Treasury note was yielding 5.14% at the end of the day. That was actually down from 5.16% Thursday.

A busy week ahead

Friday's session came ahead of a busy week in which the Federal Reserve will meet and investors will receive several readings on the housing sector and a final report on economic growth in the first quarter.

The Fed's Federal Open Market Committee meets Wednesday and Thursday but is not expected to move its federal funds rate, which has been at 5.25% since June 2006. The announcement on rates will come Thursday afternoon. The FOMC may drop the idea that it believes core inflation levels are elevated, Global Insight, an economic consulting firm, says.

The National Association of Realtors issues its existing home sales report for May on Monday, and the Commerce Department reports on new home sales for May on Tuesday. They are not expected to show much strength -- if any.

Friday, the Commerce Department reports on personal income and spending.

The biggest earnings reports will be Oracle (ORCL, news, msgs) on Tuesday, Research in Motion (RIMM, news, msgs) and General Mills (GIS, news, msgs), both on Thursday.

Friday, of course, brings the launch of Apple's (AAPL, news, msgs) iPhone mobile device after weeks of anticipation and promotion.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	13,360.26	13,639.48	-2.05%	7.20%
S&P 500	1,502.57	1,532.91	-1.98%	5.94%
Nasdaq Composite	2,588.96	2,626.71	-1.44%	7.19%
Russell 2000	834.74	848.19	-1.59%	5.98%
Crude oil per barrel	$69.14	$68.00	1.68%	13.25%
10-yr. Treasury yield	5.14%	5.17%	-0.64%	9.09%
Gold per troy ounce	$657.00	$658.70	-0.26%	2.98%

Takeover talk and Macy's: Sign of a market top?

Lost in the noise over the market's tumble and the Blackstone IPO was a 6.6% jump -- to $41.43 -- in shares of department store Macy's (M, news, msgs).

A possible takeover was the reason traders gave for the stock's rise, although it wasn't clear what or who might bid for the company.

But the volume in the stock took off, and there was heavy trading in options.

What makes Macy's interesting is that it was the subject of one of the bitterest and most disastrous takeover fights in the mid-1980s. The winner was Canadian businessman Robert Campeau, who was unable to service the huge debt taken on to take over two department store chains, Allied Stores and then Federated Department Stores, which is now Macy's.

Allied and Federated were both forced into bankruptcy.

Blackstone jumps after IPO

It wasn't a bad day for Blackstone Group's owners.

Units in the New York buyout shop fluctuated in the first few minutes of trading as investors scrambled to get a piece of the nation's second-largest private-equity firm. After pricing at $31 late Thursday, the units opened up $5.45, or 17.6%, at $36.45.

An estimated 113 million shares exchanged hands during the day -- equivalent to all the units that were in Thursday's offering. It reflected heavy demand from institutions and money managers to own a piece of the biggest private-equity firm to tap the public markets.

Short hits from the markets -- 4 p.m.

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	4.585%	4.560%	0.025	-0.11%	-6.14%
5-year Treasury note yield	5.020%	5.060%	-0.040	3.44%	6.79%
10-year Treasury note yield	5.138%	5.163%	-0.025	5.07%	9.09%
30-year Treasury bond yield	5.257%	5.284%	-0.027	4.91%	9.11%
Currencies
U.S. Dollar Index	82.11	82.49	-0.38	-0.17%	-1.58%
British pound in dollars	$1.9992	$1.9924	0.0068	0.94%	2.02%
Dollar in British pounds	£0.5002	£0.5019	-0.0017	-0.93%	-1.98%
Euro in dollars	1.3470	1.3398	0.0072	0.04%	2.05%
Dollar in euros	€ 0.7424	€ 0.7464	-0.0040	-0.04%	-2.01%
Dollar in yen	¥123.78	¥123.71	0.07	1.73%	4.00%
Commodities
Gold	$657.00	$654.20	$2.80	-1.45%	2.98%
Copper	$3.3835	$3.4025	-$0.02	-0.35%	17.85%
Silver	$13.0200	$13.0900	-$0.07	-3.34%	0.66%
Crude oil (NYMEX) (per barrel)	$69.14	$68.65	$0.49	8.01%	13.25%

A big payday

Selling a 12.3% stake in its management division raised $4.13 billion for Blackstone, making it the biggest initial public offering in the U.S. in at least five years.

It also is bringing in a lot of money for Blackstone's founders, who launched the private-equity firm in 1985 with a $400,000 investment. Chief Executive Stephen Schwarzman's stake in the company is worth about $7.7 billion, putting him among the richest of the rich on Wall Street.

• Video: How hot is Blackstone?

The highly anticipated offering represents the growing power of private-equity firms and the escalating clout of the executives who run them. As Blackstone prepared to trade for the first time, there were reports that rival Kohlberg Kravis Roberts & Co. had hired its own bankers to pursue an IPO.

"This is the first time a big brand-name private-equity firm is going public and opening up to the public how the industry really works," said Peter Shabecoff, a founding partner of Stamford, Conn., private-equity firm Atlantic Street Capital Management. "There is intense focus from investors, from Washington and from other private-equity firms that want to make the same leap."

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$69.14	$68.65	$0.49	8.01%	13.25%
Heating oil (per gallon)	$2.0380	$2.0247	$0.0133	8.25%	27.54%
Natural gas (per million BTU)	$7.1300	$7.3480	-$0.2180	-10.14%	13.19%
Unleaded gasoline (per gallon)	$2.2866	$2.2467	$0.0399	1.57%	42.73%

Battle heats up for ABN Amro

A consortium of banks led by the Royal Bank of Scotland (RBS-L, news, msgs) will formally submit a $95.5 billion rival bid for Dutch bank ABN Amro (ABN, news, msgs) in mid-July, the group said Friday.

The assertion underlines the consortium's intention to proceed with its takeover attempt despite uncertainty about whether ABN's earlier agreement to sell its U.S. arm, LaSalle Bank -- a potential deal breaker -- will be completed.

ABN has already agreed to be acquired by Barclays (BCS, news, msgs) for about $83.7 billion in stock. Barclays' offer is dependent on the LaSalle sale to Bank of America (BAC, news, msgs) going through, while the Royal Bank consortium's offer depends on it being unwound.

The consortium said in a prepared statement that, like its rival bidder Barclays, it was "making good progress on regulatory change of control and antitrust filings" involving its bid for ABN.

The Royal Bank consortium has said it will offer 38.40 euros ($51.55) per share, mostly in cash, for ABN. That's more than 10% above than Barclays' all-share offer, which is worth 34.52 euros ($46.34) per share at current levels.

Either deal, if successful, would be the largest banking takeover in history.

ABN Amro closed down 1% to $46.82 in New York. Barclay's was down 2% to $57.04. Royal Bank of Scotland was up 0.3% to $22.20 in New York.

Cuts boost Limited

Shares of Limited Brands (LTD, news, msgs) jumped Friday after the retailer said it would cut corporate jobs in Columbus, Ohio, and New York to reflect a smaller company that is moving away from apparel sales to concentrate on lingerie and beauty businesses.

Shares closed up 1.1% to $27.50.

The operator of Victoria's Secret and Bath & Body Works said it will reduce the size of its corporate staff by about 530 jobs, or 10%. The reductions will include cuts in the existing staff, the elimination of open positions and job transfers.

The company said the measures will save $100 million a year. It plans to announce the cost of the reductions later this year.

Chipotle pounded

Shares of Chipotle Mexican Grill (CMG, news, msgs) tumbled Friday after a JPMorgan Chase analyst downgraded the stock on a sharp run-up in the share price and higher near-term commodity costs.

Shares were down 4.6% at $79.58. In the past three months, shares had climbed nearly 30% and hit a 52-week high of $88.70 June 1.

Analyst Steven Rees said that although Chipotle's stock price has risen sharply, higher commodity costs may limit near-term gains. Chipotle's top four commodities costs are for beef, chicken, cheese and avocados.

"Given current spot trends and comments from others in the industry, it is difficult to point out a single commodity category that is not expected to add pressure near-term," Rees wrote in a note to clients.

Rees downgraded shares of Chipotle to "neutral" from "overweight." He said he still has a positive long-term view on Chipotle, given significant growth opportunities. At the same time, he thinks the high stock price implies no near-term risk.

By Charley Blaine with wires