Dow off 110 as crude jumps, housing weakens

By Charley Blaine and Elizabeth Strott

Stocks fell back today as weak reports on new-home sales and factory orders plus worries about bigger losses at banking giant Citigroup (C, news, msgs) gave many investors an excuse to sell.

A sudden spike in crude oil prices and a decline in the dollar added to that reasoning.

At the close, the Dow Jones industrials were down 110 points, or 1%, to 12,423. The Nasdaq Composite Index was off 17 points, or 0.7%, to 2,324, and the Standard & Poor's 500 Index fell 12 points, or 0.9%, to 1,341.

The weak close may carry into Thursday. Early investor reaction to third-quarter earnings for software company Oracle (ORCL, news, msgs) was negative. Shares of the maker of big database applications were down 0.7% to $20.94 and slumped an additional 8.4% to $19.18 in after-hours trading.

Oracle reported a 30% increase in net income to $1.3 billion. Earnings before one-time items were 30 cents, in line with estimates. Revenue of $5.3 billion, however, was lower than the consensus estimate of $5.4 billion.

• Top Stocks blog: Oracle hit by a softening economy

The market had rebounded nicely off lows on March 17, after the Federal Reserve helped JPMorgan Chase (JPM, news, msgs) engineer a buyout of crippled investment bank Bear Stearns (BSC, news, msgs).

But a pullback was inevitable. Still, compared with the March 19 sell-off, when the Dow fell 293 points, today's was modest.

And the market offered a subtle signal of strength. The Dow, Nasdaq and S&P 500 all finished the day above their 50-day simple moving averages, a good measure of market support. With Oracle's results, the question is whether the market can maintain that strength on Thursday.

Financial stocks pulled down the market. JPMorgan Chase was off 3.9% to $44.26, and Citigroup's 5.8% decline to $22.07 was the worst performance among the 30 Dow stocks.

Oppenheimer analyst Meredith Whitney forecast that Citigroup will write off $13.1 billion in the first quarter and lose $1.15 a share. Her earlier forecast had been for a loss of just 28 cents. And, she added, "We are confident this will not be our last reduction in 2008."

Separately, Goldman Sachs analyst Brian Foran said weak credit markets will cut earnings for Bank of America (BAC, news, msgs) to 50 cents. The Wall Street consensus is for 69 cents. Bank of America was down 2.8% to $39.84.

Energy stocks jumped after the government reported lower-than-expected domestic oil supplies. ExxonMobil (XOM, news, msgs) led the Dow with a 1.3% gain to $86.31. Oil and gas producer Apache (APA, news, msgs) was up 5.4% to $119.08.

But airline stocks were crushed. Amex Airline Index ($XAL.X) fell 6.8% to 26.16. American Airlines parent AMR Corp. (ARM, news, msgs) fell 11% $861. (Part of the tumble was the result of cancelling 200 flights to check the wiring on some of its planes.) Delta Air Lines (DAL, news, msgs) sank more than 12% to $8.74. Southwest Airlines (LUV, news, msgs) was off 5.3% to $11.80.

Gold closed up 1.5% on the day to $954.20 an ounce, and copper added 1.3% to $3.725 a pound in New York.

The metals moved higher as the dollar fell more than 1% against the euro and nearly 1% against the Japanese yen. The U.S. Dollar Index was off 1.2% to 71.81 this afternoon, its second daily decline in a row.

The euro's gain against the dollar came after European Central Bank President Jean-Claude Trichet cooled speculation the bank will cut rates. Keeping rates at six-year highs will help contain inflation, he said in testimony Tuesday to European Union lawmakers in Brussels.

The European Central Bank's stubbornness on its rates is a major reason for the dollar's fall.

Meanwhile, Clear Channel (CCU, news, msgs) was the second-biggest loser among S&P 500 stocks, falling more than 17% to $26.92 after reports surfaced that a dispute between banks and private-equity firms Thomas H. Lee and Bain Capital Partners could collapse a $19.5 billion buyout of the broadcasting and advertising company.

Late today, Clear Channel and its partners sued the banks in an effort to force the deal to go through.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$105.90	$101.22	$4.68	3.99%	10.34%
Heating oil (per gallon)	$3.0438	$2.9248	$0.1190	7.19%	14.89%
Natural gas (per million BTU)	$9.5720	$9.4190	$0.1530	2.04%	27.92%
Unleaded gasoline (per gallon)	$2.7429	$2.6802	$0.0627	9.18%	10.12%

New-home sales are a downer

New-home sales fell 1.8% in February to an annual pace of 590,000, the Commerce Department reported this morning -- slightly lower than the 1.6% decline in January and the lowest level in 13 years.

The report was a touch better than expected. Analysts had expected a decline to a pace of 575,000. But there were two bigger issues in the report:

• The median sales price was $244,100, down 2.7% from a year ago.

• The inventory, expressed in months' supply, held steady at 9.8 months, unchanged from January but up from 8.1 months in February 2007.

But the reduced supply doesn't mean homes are moving: Inventory for February was at 9.8 months -- the same as in January and the highest since 1981.

Home building shares, which had been rally strongly in the wake of the Bear Stearns crisis, slumped today. Ryland (RYL, news, msgs) fell 5.4% to $31.60. Pulte Homes (PHM, news, msgs) fell 5.7% to $14.19, and Hovnanian (HOV, news, msgs) sagged 9.4% to $11.05.

The housing sector isn't without rays of hope. Mortgage applications jumped a seasonally adjusted 48.1% last week, the Mortgage Bankers Association reported this morning.

• Video: More on the new-home sales data

Applications to refinance soared 81.1%, and applications for mortgages to buy new homes rose 10.6%.

The average rate on a 30-year fixed mortgage fell to 5.74% last week, down from 5.98% the week before.

Meanwhile, orders for durable goods fell 1.7% in February after a revised decline of 4.7% in January, the Commerce Department reported.

Economists had expected an increase of 0.8% last month.

Spending on business equipment, excluding aircraft, fell 2.6% after a decline of 1.6% in January.

Paulson: Time to tighten rules on Wall Street

U.S. Treasury Secretary Hank Paulson said today that the government needs to strengthen the rules that govern Wall Street.

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

The Bear Stearns debacle "has highlighted that the world has changed as has the role of other nonbank financial institutions and the interconnectedness among all financial institutions," Paulson said in a speech to the U.S. Chamber of Commerce. "These changes require us all to think more broadly about the regulatory and supervisory framework that is consistent with the promotion and maintenance of financial stability," he added.

Paulson also said keeping the economy flowing is a key priority.

"As we work our way through this turbulence, our highest priority is limiting its impact on the real economy," Paulson said. Paulson had been CEO of Goldman Sachs (GS, news, msgs) before joining the Bush administration.

Motorola to split

Troubled cell-phone maker Motorola (MOT, news, msgs) announced this morning that it is splitting into two publicly traded companies.

• Video: Motorola is going to break up its businesses

Shares of Motorola rose 25 cents, or 2.7%, to $10.02 today.

The company will focus on handsets, and the other will sell network equipment, cable TV set-top boxes and two-way radios -- businesses that are profitable and growing faster. The company expects the spinoff to take place in 2009.

In late January, Motorola announced plans to evaluate its businesses, including the possibility of a spinoff of its handset business.

• Top Stocks blog: Investors vote 'no' on Motorola breakup

Pressure for the breakup of the company has come chiefly from billionaire investor Carl Icahn, one of Motorola's biggest shareholders, with a 6% stake.

Merrill analyst Tal Liani and Morgan Stanley analyst Scott Coleman told Bloomberg News that the breakup won't boost Motorola's value alone and that the company has to fix the handset business.

Other analysts said the decision may result in the demise of the handset business.

Clear Channel deal crumbles

Clear Channel Communications is another victim of the credit crunch.

The $19.5 billion leveraged buyout of the company is reportedly near collapse because the banks financing the deal, including Citigroup and Morgan Stanley (MS, news, msgs), are concerned about details in the credit agreement with the buyout group.

Private-equity firms Thomas H. Lee and Bain Capital agreed to buy the radio broadcasting company for $39.20 per share in November 2006.

Clear Channel told The Wall Street Journal late Tuesday that it expected the buyout to close by the end of the quarter.

The uncertainty about the buyout caused investors to worry about other deals, especially the $34 billion buyout of BCE Inc. (BCE, news, msgs), the parent of Bell Canada. BCE was down 2.9% to $35.03 today.

Continued: Citigroup pays $1.7 billion to settle Enron claims

 1 | 2 | next >