March ends in a draw as rally fades

By Charley Blaine and Elizabeth Strott

Treasury Secretary Hank Paulson today unveiled a sweeping plan to reorganize regulation of the nation's financial markets, and the stock market responded with a small rally.

The Dow Jones industrials closed up 46 points, 0.4%, to 12,263. The Nasdaq Composite Index was up 18 points, 0.8%, to 2,279, and the Standard & Poor's 500 Index was up 7 points to 1,323.

Financial stocks were among the strongest sectors in the market today, along with semiconductors, retail and real estate stocks.

Citigroup (C, news, msgs) was the Dow leader today with a 2.8% gain to $21.42.

Chip maker Micron Technology (MU, news, msgs) was the S&P 500 leader, up 9.5% to $5.98 after Asian chip manufacturers said they planned to raise prices. Fortune Brands (FO, news, msgs) jumped 8.8% to $69.50 after the spirits and wine maker launched a large share buyback program, following a failed bid to buy Sweden's Vin & Sprit, which makes Absolut vodka.

Merck (MRK, news, msgs) was the weakest Dow stock, falling 15% to $37.95 after the effectiveness of its anticholesterol drug Vytorin was slammed at a meeting of the American College of Cardiology. Schering-Plough (SGP, news, msgs), which has partnered with Merck on the drug, was off 25% to $14.52, its biggest one-day loss since the 1987 stock market crash. It was the biggest S&P 500 loser on the day, followed by Merck.

The first quarter was the worst for the stock market since the third quarter of 2002. But March ended basically flat for the big indexes.
The S&P 500 was off 0.4%, its fifth consecutive monthly loss, largely because of weakness in financial and healthcare stocks. The Dow was down 3.5 points -- 0.03%. While the decline is statistically meaningless, it is, in fact, the blue chips' fifth consecutive monthly loss.

The Nasdaq, the Nasdaq-100 Index ($NDX.X) and the Russell 2000 Index ($RUT.X), which tracks small-capitalization stocks, ended the month with gains -- their first after four months of losses.

The Nasdaq-100, in fact, was up 2.1% for the month, as such stocks as Apple (AAPL, news, msgs) and Research In Motion (RIMM, news, msgs) rebounded. Apple, up slightly today, was up nearly 14.8% on the month to $143.50. But it also finished the quarter down nearly 28%.

RIMM was down 2.7% on the day to $112.23 but up more than 7% on the month. It was off 1% on what was, in fact, a forgettable quarter.

The Dow finished down 7.5%. The S&P 500 was off 9.9%. The Nasdaq shed 10.5%, the Nasdaq-100 14% and the Russell 2000 10.2%. All the averages, however, rebounded a bit more than 5% off lows in January and in mid-March.

Obviously, Apple played a role in the drubbing absorbed by the Nasdaq and Nasdaq-100. Google (GOOG, news, msgs) was probably a bigger factor. While the Internet search giant finished today up 0.6% to $440.47, it was down 6% for the month and 36% on the quarter.

Lehman Bros. sells convertible shares

After the close, investment bank Lehman Bros. (LEH, news, msgs) said it is selling 3 million shares of convertible preferred stock to boost capital for $3 billion.

The shares will pay a dividend of 7% to 7.5%, and the shares will be convertible into Lehman Bros. shares at a premium of 30% to 35%. That is, instead of getting common shares at a 1-to-1 ratio, investors in the preferred stock would get 1.3 shares.

The announcement didn't cheer investors much. Shares were down 2.8% to $36.60 in after-hours trading. The stock had closed down 0.6% to $37.64 in regular trading. The shares are down nearly 60% since peaking in February 2007.

How the market fared in March 

	Monday's close	% chg. for month	% chg. for quarter
Major Indexes
Dow Jones Industrial Average	12,262.89	-0.03%	-7.55%
Standard & Poor's 500 Index	1,322.70	-0.60%	-9.92%
Nasdaq Composite Index	2,279.10	0.34%	-14.07%
Sector Indexes -- Winners
MSCI U.S. REIT index	878.87	5.99%	0.95%
Philadelphia Housing Sector Index	143.14	5.88%	-0.58%
Dow Jones Transportation Average	4,783.88	5.13%	4.67%
Dow Jones U.S. Steel Index	437.44	5.00%	4.97%
Amex Tobacco Index	891.68	2.80%	1.89%
Sector Indexes -- Losers
Amex Oil index	1,337.68	-5.85%	-14.23%
Amex Gold BUGS Index	438.42	-9.80%	7.10%
Amex Securities/Broker Dealer index	154.35	-15.00%	-25.59%
Amex Airline index	26.73	-15.14%	-22.14%
Morgan Stanley Healthcare Payors Index	1,381.04	-23.76%	-35.00%

Paulson's big plan will take time

Investors spent much of the day pondering when Paulson's bid to reorganize regulation of U.S. financial markets would take effect.

The answer seemed to be not very soon and probably not in the form that Paulson envisions. That may be why stocks -- especially financial stocks -- were higher on the day.

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

Paulson said his proposal to modernize financial regulation with the Federal Reserve taking a lead role will take a great deal of time to implement.

• First, he said today, the markets need to stabilize, and he won't move until he judges stabilization has arrived.

• Second, much of what Paulson proposes will require congressional approval. In all, he said, it might take two to eight years for all the ideas to be implemented.

So, it will take months -- if not years -- before anything becomes law. And the November election will have a big influence on the plan's ultimate form.

How the plan works -- for now

Under the plan, the Fed would be allowed to delve into the books of banks, brokers and insurance companies if it suspects they contain problems posing a risk to the overall financial system.

• Talk back: Should the Fed be given expanded powers?

A second body called the Prudential Financial Regulatory Agency would specifically concentrate on banks with a government guarantee, while a third, the Business Regulatory Agency, would focus on consumer protection.

Meanwhile, several existing agencies would be merged under the plans. The Securities and Exchange Commission would be combined with the Commodities Futures Trading Commission, which oversees dealing in derivatives.

In an attempt to stave off future mortgage-lending crises, the plan would create a Mortgage Orientation Commission that would establish uniform licensing and education standards for state mortgage brokers. Paulson envisions that idea becoming law as soon as possible.

Big banks saw little to fear in the blueprint, which is why their stocks were rallying this afternoon. The Amex Securities Broker/Dealers Index ($XBD.X) was up 2.9% to 155. The Standard & Poor's 500 Index ($BIX.X) was up 0.4% to 238.

"Our current regulatory structure was not built to address the modern financial system with its diversity of market participants, innovation, complexity of financial instruments . . . global integration and interconnectedness among financial institutions, investors and markets," Paulson said in his speech this morning. "Our first priority is working through this current period of market difficulty.

But the Consumer Federation of America said the plan would only allow the Fed to exercise its new powers only when it felt the entire system was at risk -- in other words, when a problem had already become severe.

"This is a crisis-management approach which is not conducive to market stability," said Barbara Roper, the federation's director of investor protection. "The Fed's record on recognizing risk in advance is remarkably poor."

Sen. Charles Schumer, D-N.Y., while applauding the plan, said he disagreed with a three-pronged approach to regulation. Too many problems fall between the cracks between regulators, and the markets need a final authority "where the buck stops."

Skeptics contend that under former chief Alan Greenspan, the Fed played two roles in inflating the housing bubble that has since burst with such serious consequences for the financial sector, Fortune magazine noted today:

• After the dot-com bust and the Sept. 11, 2001, terror attacks, the Fed cut the fed's key federal funds rate to as low as 1% by 2003 and left it at that level too long.

• The Fed failed to stop a sharp decline in mortgage underwriting standards that helped fuel housing speculation, especially in such in hot markets as California, Florida and Arizona.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$101.58	$105.62	-$4.04	-0.26%	5.83%
Heating oil (per gallon)	$3.0492	$3.1050	-$0.0558	7.38%	15.09%
Natural gas (per million BTU)	$10.1010	$9.8000	$0.3010	7.68%	34.99%
Unleaded gasoline (per gallon)	$2.6163	$2.7050	-$0.0887	4.14%	5.04%

Vytorin's effectiveness questioned

Cholesterol drug Vytorin, marketed by Merck and Schering-Plough, did not produce significant improvements in patients suffering from heart disease, according to a study by a panel of cardiologists. The panel presented its findings this weekend at the annual meeting of the American College of Cardiology in Chicago.

The study suggested that doctors should not prescribe Vytorin and should instead return to prescribing statins like Pfizer's (PFE, news, msgs) Lipitor or Merck's Zocor, which is now sold as a generic. (Pfizer was up 2.1% to $20.93.)

The drug "has to be used extremely conservatively," Allen Taylor, chief of cardiology at Walter Reed Army Medical Center in Washington, D.C., told Bloomberg News. "There are a lot of great cholesterol treatments and, among those options, this is the one with the least evidence that it does the right things."

Vytorin combines Zocor with Schering-Plough's Zetia. The combination drug brought in $5 billion in sales in 2007. Vytorin has been on the market since 2004.

Soybeans replace corn for many U.S. farmers

U.S. farmers will be planting more soybeans and wheat -- but less corn -- this year, according to the U.S. Department of Agriculture.

Farmers will seed 74.8 million acres of land with soybeans, up 18% from last year, the USDA report indicated. Meanwhile, corn plantings will likely fall by 8.1%.

"Coming off a year of massive migration to corn, growers don't want to go three years in row," Jim Gerlach, president of AC Trading in Fowler, Ind., told Bloomberg News. "Farmers get a nice benefit from rotating corn and soybeans in the Midwest."

The price of corn has been soaring amid the ethanol craze, and fewer corn plantings will only push those prices higher -- and the consumer may be the one bearing the burden of higher prices. It's a snowball effect: Farmers who use corn to feed their livestock will have to charge more to meatpackers and companies that use corn in their products will have to boost prices for their goods at the grocery store.

Corn has been trading at near-record highs of $5.70 a bushel; corn has risen 44% over the past year. The cost of growing corn has risen as well.

The news hit Monsanto (MON, news, msgs), one of the biggest suppliers of corn seed. Monsanto was down 2.5% to $111.50. Also falling was fertilizer producer Potash of Saskatchewan (POT, news, msgs), down 3.3% to $155.21.

Citigroup makes changes to its consumer group

Citigroup said today it will split its consumer group into two businesses, the latest in a series of moves designed to help return the banking giant to profitability.

Citigroup said it will create an independent credit card unit that will be run by Steven Freiberg, current head of the company's consumer banking division. Terri Dial will head the U.S. consumer banking unit; Dial is joining Citigroup from Lloyds TSB Group.

Shares of Citigroup were up 2.4% to $21.22 this afternoon.

United finds faulty wiring in landing gear

UAL's United Airlines (UAUA, news, msgs) this weekend said it found improper wiring connected to the landing gear of two of its jets, The Wall Street Journal reported.

Airline officials are trying to determine who is at fault for the improper wiring, which was found in two of United's Airbus SAS A320 planes.

The newspaper reported that improper wiring may have been a factor in two landing incidents. In February, a United jet skidded off the runway in Jackson Hole, Wyo., when trying to land. Four months earlier, a United jet veered off the runway at Chicago's O'Hare airport. There were no injuries in the Jackson Hole accident and minor injuries in the Chicago accident.

UAL shares were up 1.2% to $21.45 this afternoon.

Separately, Aloha Airlines ended passenger service today after 60 years of service. The company said stiff competition and rising fuel prices forced it out of business.

The airline employed about 1,900 people.

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

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.275%	1.350%	-0.075	-29.17%	-59.39%
5-year Treasury note yield	2.467%	2.535%	-0.068	-1.67%	-28.60%
10-year Treasury note yield	3.432%	3.466%	-0.034	-2.89%	-14.94%
30-year Treasury bond yield	4.306%	4.345%	-0.039	-2.58%	-3.43%
Currencies
U.S. Dollar Index	72.165	72.105	0.060	-2.16%	-5.91%
British pound in dollars	$1.9857	$1.9972	-0.0115	-0.22%	-0.18%
Dollar in British pounds	£0.5036	£0.5007	0.0029	0.22%	0.18%
Euro in dollars	1.5795	1.5818	-0.0022	4.06%	8.07%
Dollar in euros	€ 0.6331	€ 0.6322	0.0009	-3.90%	-7.47%
Dollar in yen	99.65	98.85	0.80	-4.34%	-10.91%
Canadian dollar in U.S. dollars	$0.975	$0.978	-$0.0038	-3.95%	-1.84%
U.S. dollar in Canadian dollars	$1.027	$1.022	$0.0048	4.00%	1.89%
Commodities
Gold	$921.50	$936.50	-$15.00	0.16%	9.96%
Copper	$3.8310	$3.8315	$0.00	7.21%	25.98%
Silver	$17.3100	$17.9400	-$0.63	2.73%	16.02%
Crude oil (NYMEX) (per barrel)	$101.58	$105.62	-$4.04	-0.26%	5.83%