Dow off 238 on economic worries

The stock market fell apart this afternoon largely because of a comment from AT&T's (T, news, msgs) CEO that a slowing economy is starting to hurt the telecom giant's consumer business.

At the same time, there was deep selling in financial stocks in part because of worries that Countrywide Financial (CFC, news, msgs) wouldn't survive the subprime-mortgage crisis.

At the close, the Dow Jones industrials had lost more than 238 points, or 1.9%, to 12,589. The Standard & Poor's 500 Index was off 26 points, or 1.9%, to 1,390, and the Nasdaq Composite Index was down 59 points, or 2.4%, to 2,441.

The S&P 500's 5.3% loss over the first five days of 2008 is its worst loss over the first five sessions of the year ever.

The Dow's 5.1% loss over the same period is its worst percentage loss since 1978. The 676-point loss over the five days was its worst point loss ever.

The ugly finish came as gold hit a record close of $880.30 an ounce, the dollar fell and oil rallied.

The Dow had its fifth loss in eight sessions; all of them have been at least 100 points. Today's was the Nasdaq's eighth consecutive loss.

Today's selling began as soon as the comments from AT&T CEO Randall Stephenson, speaking at a conference in Phoenix, hit news wires. Shares of the Dow component fell as much as 9.5% to $37.14 before recovering to a 4.6% loss to $39.16 at the close. Verizon Communications (VZ, news, msgs), a fellow Dow component, was down 4% to $41.25.

The Amex North American Telecommunications Index ($XTC.X) fell 3.1% to 931.

And the reverberations of the sell-off were felt across technology. The Philadelphia Semiconductor Index ($SOX.X) was down 2.7% to 362. The Amex Networking Index ($NWX.X) was off 2.9% to 235.

Cisco Systems (CSCO, news, msgs) fell 2.7% to $25.43.

Apple (AAPL, news, msgs), which had been up as much as 2.7%, finished down 3.6% to $171.25. Once up as much as 4%, Research In Motion (RIMM, news, msgs) tumbled 3.4% to $96.44.

The Dow and S&P 500 are both down more than 5% in five trading sessions in 2008 and down more than 11% since peaking on Oct. 9. The textbook definition of a market correction is a loss of 10%.

The Nasdaq, down nearly 8% since Dec. 31, has fallen down 15% from its six-year peak on Oct. 31.

The sell-off pushed the S&P 500 under a support level of 1,406, and the next support looks to be around 1,370. Technicians define a support level as a price or level a stock or an index hits on at least three occasions and won't break below.

The Stock Trader's Almanac said late today that the market's 5% decline in the first five days of the year is the worst five-day open for the market since 1930. This is a bearish development because it has occurred in the midst of economic uncertainty.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$96.33	$95.09	$1.24	0.36%	0.36%
Heating oil (per gallon)	$2.6363	$2.5935	$0.0428	-0.49%	-0.49%
Natural gas (per million BTU)	$7.9670	$7.8790	$0.0880	6.47%	6.47%
Unleaded gasoline (per gallon)	$2.4739	$2.4298	$0.0441	-0.68%	-0.68%

After 27 years, a new record for gold

Were it not for the stock market's woes, gold would have been the big story today.

Gold broke its old record of $875 an ounce, set on Jan. 21, 1980. When adjusted for inflation, however, gold remains far short of its all-time high, The Associated Press noted today. An ounce of gold at $875 in 1980 would be worth $2,115 to $2,200 today.

Newmont Mining (NEM, news, msgs) was up 2.5% to $52.78. Barrick Gold (ABX, news, msgs) was up 4.3% to $49.28.

The StreetTRACKS Gold (GLD, news, msgs) exchange-traded fund, which tracks the price of gold, closed up 2.4% to $86.78.

Crude oil was at $97.19 a barrel, up $2.10 from Monday. Energy stocks, however, were largely lower.

Countrywide's woes won't give up

The market was already struggling because of Countrywide's problems and worries about the dollar that sent gold to a record $880.30 an ounce in New York.

Countrywide shares slumped in the morning on rumors that the nation's biggest mortgage lender was going to seek bankruptcy protection, and the New York Stock Exchange even halted trading in the shares.

The company pointedly denied the assertion. "There is no substance to the rumor that Countrywide is planning to file for bankruptcy," a company statement said, "and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company."

After trading resumed, the shares recovered for a short time but slumped again to $5.40, a 29% loss.

Even if Countrywide has denied it may seek bankruptcy protection, the company's problems appear to be deepening.

The New York Times reported today that court records in a bankruptcy case involving a Pennsylvania homeowner showed that the company fabricated documents related to the case.

The documents -- three letters from Countrywide addressed to the homeowner -- claimed that the borrower owed the company $4,700 because of discrepancies in escrow deductions. Countrywide’s lawyers described the letters to the court as "recreated," startling the judge overseeing the case.

"These letters are a smoking gun that something is not right in Denmark," Judge Thomas Agresti said in a Dec. 20 hearing in Pittsburgh.

Meanwhile, Bloomberg News reported that credit-default swaps -- financial instruments designed to help protect a company's financial position -- soared to a record as investors demanded 30% upfront and 5% a year to protect from a Countrywide default for five years, according to broker Phoenix Partners Group in New York.

Meanwhile, the Countrywide worries put new pressure on mortgage bond insurers Ambac Financial (ABK, news, msgs) and MBIA (MBI, news, msgs). Ambac was down 17% to $19.56, and MBI was off 21% to $13.98.

Bear Stearns' CEO is on the way out

Bear Stearns (BSC, news, msgs) Chief Executive Jimmy Cayne is expected to leave his position amid the mortgage-market mess, according to published reports.

Cayne, who has been CEO since 1993, will reportedly stay on as chairman of the 85-year-old company. Alan Schwartz, who is currently president of the company, is expected to become the new CEO.

Bear, like the rest of the financial-services stocks, has been battered by the recent meltdown, but Bear's beating may have been the worst. Bear had lost 53% of its share price over the past year as of Monday's close, and the bank has had to shut down two subprime-backed hedge funds.

• Video: Cayne to leave Bear?

Bear Stearns shares were down 6.7% to $71.17 on the day; the stock had been as high as $78.04 right after the open.

In December, Bear reported a loss of $854 million, or $6.90 per share, in the fourth quarter of 2007 -- the company's first-ever quarterly loss -- and said it was writing down $1.9 billion in subprime mortgages.

Cayne agreed to forgo his bonus for the year. In 2006, Cayne took home a whopping $33.6 million.

Cayne has suffered along with his shareholders. When the stock peaked at $169, Cayne owned 6.4 million shares, making his stake worth nearly $1.1 billion. He has sold some shares since, and his remaining stake of about 5.6 million shares is worth about $427 million.

• Get free, real-time stock quotes on MSN Money

If Cayne makes it official, he will join Stan O'Neal, formerly of Merrill Lynch (MER, news, msgs), and Chuck Prince, ex-CEO of Citigroup (C, news, msgs), both of whom resigned in recent months because of losses and write-downs stemming from the mess.

Housing looks grim

Things aren't looking up for home builder KB Home (KBH, news, msgs).

The company this morning reported a fiscal-fourth-quarter loss of $772.7 million, or $9.99 per share -- far worse than the loss of $49.6 million, or 64 cents per share, that KB Home reported in the same quarter a year ago.

Fourth-quarter net orders for new homes fell 32% from the fourth quarter of 2006.

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The company sees another tough year in 2008.

KB Home shares fell 9.2% to $16.78 this afternoon. The Philadelphia Housing Sector Index ($HGX.X) fell 4.4% to 122.

Separately, the National Association of Realtors' pending home sales index fell 2.6% in November to a reading of 87.6. The index was down 19.2% from November 2006.

"We're not at the bottom of the housing downturn yet," Nigel Gault, chief U.S. economist at Global Insight, told Bloomberg News. "Prices are probably going to go down for a while. Until people see things stabilizing, they're going to wait."

The index measures contracts that were signed but not yet closed.

Citigroup, JPMorgan Chase cut by Merrill

Citigroup could face a $16 billion write-down in the fourth quarter, Merrill Lynch analyst Guy Moszkowski wrote in a note to clients today.

Moszkowski said that the banking giant's quarterly loss would be $1.43 per share, worse than his previous estimate of a loss of 73 cents per share.

The Merrill analyst also said that JPMorgan Chase (JPM, news, msgs) would earn only 94 cents per share in the fourth quarter, down from a previous estimate of $1.04 per share.

Citigroup shares were down 4% to $27.14. JPMorgan Chase shares fell 4% to $39.70.

Starbucks shares jump on Schultz's return as CEO

Shares of coffee shop giant Starbucks (SBUX, news, msgs) survived the sell-off today, finishing up 8% to $19.86 in the wake of the company's announcement late Monday said that Chairman Howard Schultz will replace Jim Donald as chief executive.

Schultz had been CEO of Starbucks from 1987 to 2000 and helped build the company into a global giant.

Schultz plans to slow the number of new stores in the U.S. and close locations that are having trouble.

The announcement also came just in time for Starbucks, it seems, as McDonald's (MCD, news, msgs) is arming its fast-food stores with coffee specialty bars to directly compete with Starbucks.

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Starbucks shares have been in a slump, falling 47% over the past year as of Monday's closing price.

"Bringing Schultz back helps rally the troops," Walter Todd, a principal at Greenwood Capital Associates, told Bloomberg News. "He's synonymous with Starbucks. Given the way the stock has performed, employees probably were disenchanted, and Schultz may bolster enthusiasm."

This morning, Starbucks was upgraded to "neutral" from "sell" at Banc of America Securities.

Microsoft in data-search deal

Microsoft (MSFT, news, msgs) said this morning that it will pay $1.2 billion for the Norwegian search engine company Fast Search & Transfer, in an effort to expand its search business.

Microsoft shares fell 3.4% to $33.45 on the day. (Microsoft is the publisher of MSN Money.)

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Fast Search & Transfer's board of directors said it approved the deal; if Microsoft gets 90% of the Norwegian company's shareholders on board, the deal is expected to be completed by the second quarter of 2008.

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

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	3.160%	3.165%	-0.005	0.64%	0.64%
5-year Treasury note yield	3.157%	3.157%	0.000	-8.63%	-8.63%
10-year Treasury note yield	3.840%	3.839%	0.001	-4.83%	-4.83%
30-year Treasury bond yield	4.355%	4.336%	0.019	-2.33%	-2.33%
Currencies
U.S. Dollar Index	76.11	76.20	-0.09	-0.76%	-0.76%
British pound in dollars	$1.9720	$1.9697	0.0023	-0.87%	-0.87%
Dollar in British pounds	£0.5071	£0.5077	-0.0006	0.88%	0.88%
Euro in dollars	1.4712	1.4702	0.0011	0.66%	0.66%
Dollar in euros	€ 0.6797	€ 0.6802	-0.0005	-0.66%	-0.66%
Dollar in yen	¥108.90	¥109.22	-0.32	-2.64%	-2.64%
Commodities
Gold	$880.30	$862.00	$18.30	1.69%	5.05%
Copper	$3.2985	$3.1410	$0.16	4.47%	8.47%
Silver	$15.8150	$15.2900	$0.53	2.28%	6.00%
Crude oil (NYMEX) (per barrel)	$96.33	$95.09	$1.24	-1.61%	0.36%

By Charley Blaine and Elizabeth Strott