Fear drops stocks under key benchmarks

By Charley Blaine and Elizabeth Strott

Deepening worries about financial stocks hit the market today, and the Standard & Poor's 500 Index fell below a key level, leaving many analysts worried that stocks may be headed even lower.

The S&P 500 finished the day at 1,304.34, down 29 points or 2.2%, to its lowest point since September 2006. More importantly, the broad market index closed under 1,310.50, which had been the lowest close for the index since its Oct. 9 peak.

With the today's close, the fear is that the market could slide to test 1,270, its intraday low on Jan. 23.

Meanwhile, the Dow Jones industrials closed down 214.6 points, or 1.8%, to 12,040.39, with only Wal-Mart Stores (WMT, news, msgs) showing a gain on the day -- 0.9% to $49.98. It was the Dow's ninth loss of 200 points or more this year.

The Nasdaq Composite Index fell 52 points, or 2.3%, to 2,220.50.

The S&P 500, Nasdaq and the small-cap Russell 2000 Index ($RUT.X) all finished at 52-week lows, a very bearish indicator. The Russell closed down 21 points, or 3.1%, to 662.78.

The Dow finished within about 69 points of its Jan. 22 closing low of 11,971.19. The Jan. 22 close was its first close under 12,000 since October 2006.

The market's weak close means Friday's open will be especially sensitive. It will come after the Labor Department releases its monthly payrolls report for February. Economists are expecting the report to show a gain of 25,000 to 30,000 jobs for the month.

A weak report could precipitate major selling that could extend into next week.

Financial stocks lead the market lower

The market was weak from the outset on reports that several financial companies had missed financial calls, including Thornburg Mortgage (TMA, news, msgs), a big lender of jumbo mortgages.

Meanwhile, a report said defaults on home mortgages touched another all-time high at the end of the last year as foreclosures on adjustable-rate mortgages surged.

The latest data is expected to put further pressure on the government and the mortgage industry to move faster to contain losses and help more homeowners.

• Scott Burns: Foreclosure 'crisis' is overblown

The Mortgage Bankers Association reported today that the number of loans past due or in foreclosure jumped to 7.9% from 7.3% at the end of September and 6.1% in December 2006. Before the third quarter, the rate had never risen past 7% since the survey began in 1979.

Home-building shares fell on the news. The Philadelphia Housing Sector Index ($HGX.X) fell 4.8% to just under 128.

The report came out after the National Association of Realtors said today that pending home sales in January were flat. The organization says that may be a sign of some stabilization. The NAR's index showed a reading of 85.9 in January -- down nearly 20% from January 2007.

Lastly, there were unconfirmed reports that UBS AG (UBS, news, msgs), Switzerland's biggest bank, was selling U.S. mortgage-backed securities at fire-sale prices. UBS wouldn't comment on the reports.

Thornburg was down more than 51% to $1.65 and is down nearly 95% since peaking at $31.28 in April 2004. UBS fell 4.3% to $29.52 in New York; it's down 55% since its April 2007 peak.

Financials were the weakest sector of the market. The Select Sector SPDR Financial (XLF, news, msgs) exchange-traded fund, which mirrors the financial sector of the S&P 500, fell 3.6% to $24.24 with more than 135 million shares traded on the day.

The ETF is down 6% this week alone and 16% for the year.

Even Goldman Sachs (GS, news, msgs), the most powerful Wall Street investment house, was clobbered, falling to $158.65, nearly a 52-week low.

What the reports suggested was that many big financial institutions still don't have a firm handle on the depths of their problems with mortgage-related investments made in the last few years.

In fact, after the close, Citigroup (C, news, msgs), the world's biggest bank by assets, announced plans to shrink its U.S. mortgage businesses and combine them into a single division, hoping to save $200 million a year. The announcement came after Citigroup fell 4.4% on the day, to $21.17. It was the worst performer of the 30 Dow stocks.

• BusinessWeek: What went wrong at Citigroup

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$105.47	$104.52	$0.95	3.56%	9.89%
Heating oil (per gallon)	$2.9431	$2.9431	$0.0000	3.64%	11.09%
Natural gas (per million BTU)	$9.7410	$9.7410	$0.0000	3.84%	30.18%
Unleaded gasoline (per gallon)	$2.6421	$2.6421	$0.0000	5.17%	6.07%

Nobody is immune

While the financials were the worst area of today's market, no sector was immune to the downdraft. All 10 sectors of the S&P 500 were lower, even energy stocks, despite crude oil's hitting $105.47, a new closing high. Dow components ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs) were down 3.1% to $84.51 and 1.1% to $87.80, respectively.

But Schlumberger (SLB, news, msgs) and Baker Hughes (BHI, news, msgs), two of the biggest oil service companies, were only modest losers. Schlumberger was off 19 cents to $87.66. Baker Hughes fell 26 cents to $69.75.

Only 17 S&P 500 stocks showed gains on the day, led by H&R Block (HRB, news, msgs), the tax company, up 3.4% to $17.83 on better-than-expected earnings. Database maker Oracle (ORCL, news, msgs) was second, up 2.3% to $19.23.

Only 10 Nasdaq-100 ($NDX) stocks showed gains, led by mining equipment maker Joy Global (JOYG, news, msgs), up 5% to $69.11. The company reported a 27% increase in first-quarter earnings to 65 cents from a year ago. Apple (AAPL, news, msgs), which announced plans to push its iPhone into the corporate market, was down 2.9% to $120.93. Google (GOOG, news, msgs) continued to slump, finishing down 3.4% to $432.70. The stock is now down 37% this year alone. Apple is down 39%.

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Thornburg, Carlyle in default

Thornburg Mortgage shares slumped after disclosing that JPMorgan Chase (JPM, news, msgs) had declared Thornburg in default for failing to meet a $28 million margin call. In a Securities and Exchange Commission filing late Wednesday, Thornburg said that JPMorgan's notification triggered a series of cross-defaults, calling those obligations "material."

A margin call occurs when the value of securities bought with borrowed money decreases below the minimum collateral requirement; the investor must either add to the collateral -- with cash or securities -- or close out the original position.

Thornburg has been slammed by the slumping housing and mortgage markets.

A year ago, Thornburg was trading at around $25. It began falling in July 2007.

The total loan from JPMorgan amounted to $320 million, Thornburg's filing said.

Meanwhile, Carlyle Group's bond fund, Carlyle Capital, said that it has failed to meet four of seven margin calls Wednesday. The calls totaled more than $37 million.

"The credit crisis is spilling over to the next asset class, agency bonds," Philip Gisdakis, senior credit strategist at UniCredit, said to Bloomberg News. "There's never just one cockroach. If you see one highly leveraged hedge fund going bust, then there's another on the way."

Ambac's rescue plan fails to cheer

Troubled bond insurer Ambac Financial's (ABK, news, msgs) plan to raise $1.5 billion by selling stock and convertible securities didn't thrill Wall Street. In fact, stocks and investors took the news -- announced Wednesday afternoon -- as anything but good for Ambac and for financials overall.

The stock fell 14.7% to $7.42 this afternoon, after falling 18% on Wednesday. Talk earlier this week had circulated about a bailout plan involving a number of banks; such a plan failed to materialize, however.

• Video: Mortgage market turmoil

Ambac's goal is to maintain its AAA credit rating. Rival MBIA (MBI, news, msgs) fell 4.8% to $11.60.

Wal-Mart's retail surprise

At least Wal-Mart had something good to say today.

The retail giant said that February sales at stores open at least one year rose 2.6%, much better than analysts' expectations of a gain of 1.1%. The sales figures exclude fuel.

"In a softening economy, Wal-Mart is better positioned than most other retailers because of its lower-end pricing," said Berkeley Capital Management money manager Bruce Brewington to Bloomberg News.

Wal-Mart had expected same-store sales to be flat to up 2% last month. The retail giant also said net sales in February rose 8.9% to $29.18 billion.

Wal-Mart also said this morning that it is boosting its annual dividend by 8% to 95 cents per share.

About two-thirds of retailers that have reported sales have beaten analysts' estimates, according to sales tracker Thomson Financial. Thomson tracks monthly same-store sales at 42 retail chains across the country.

Target (TGT, news, msgs) said same-store sales rose 0.5% in February from a year ago, thanks to strong shoe sales. Analysts had predicted a decline of 0.2%. Shares fell 1% to $52.27.

Gap (GPS, news, msgs) reported a worse-than-expected 6% decline in sales at stores open at least one year. Shares fell 5.6% to $19.37.

Kohl's (KSS, news, msgs) also reported a decline in same-store sales last month. The company said sales fell 3.8%, just slightly better than the 4% analysts were expecting. Shares fell 4.6% to $42.63.

BOE, ECB keep rates on hold

The Bank of England kept its key interest rate at 5.25% this morning, which had been expected. While the BOE is concerned about a slowing economy in the United Kingdom, having cut rates in February and December, the bank has not forgotten about inflation.

• Video: How to play the weak dollar

"With rising inflation, a weak pound and high inflation expectations, the (Monetary Policy Committee) wants to allow the slowdown to create more of a disinflationary cushion and hence easing will remain gradual," Michael Saunders, U.K. economist at Citigroup (C, news, msgs), wrote in a note to clients.

The European Central Bank also left rates at 4%.

The euro rose against the U.S. dollar this morning, rising to a record high of $1.5364, after the banks' decisions were announced. "There have been more questions whether or not the ECB might intervene because of the extraordinary euro strength, but there hasn't been any real sign of that, and we don't expect it," currency analyst John Shin at Lehman Bros. told The Wall Street Journal.

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.365%	14.800%	-13.435	-24.17%	-56.53%
5-year Treasury note yield	2.513%	2.594%	-0.081	0.16%	-27.26%
10-year Treasury note yield	3.622%	3.693%	-0.071	2.49%	-10.24%
30-year Treasury bond yield	4.579%	4.605%	-0.026	3.60%	2.69%
Currencies
U.S. Dollar Index	73.040	73.490	-0.450	-0.97%	-4.77%
British pound in dollars	$2.0137	$2.0117	0.0020	1.19%	1.23%
Dollar in British pounds	£0.4966	£0.4971	-0.0005	-1.18%	-1.21%
Euro in dollars	1.5401	1.5394	0.0007	1.46%	5.38%
Dollar in euros	€ 0.6493	€ 0.6496	-0.0003	-1.44%	-5.10%
Dollar in yen	¥102.61	¥102.57	0.04	-1.49%	-8.26%
Canadian dollar in U.S. dollars	$1.016	$1.015	$0.0006	0.10%	2.30%
U.S. dollar in Canadian dollars	$0.985	$0.986	-$0.0007	-0.22%	-2.25%
Commodities
Gold	$977.10	$988.50	-$11.40	0.22%	16.60%
Copper	$3.9035	$3.8215	$0.08	0.66%	28.36%
Silver	$20.7850	$19.8400	$0.95	4.37%	39.31%
Crude oil (NYMEX) (per barrel)	$99.69	$99.69	$0.00	-2.11%	3.87%