Dow falls 206 as crude tops $123

By Charley Blaine and Elizabeth Strott

Stocks today suffered their worst one-day losses since April 11 as crude oil topped $123 a barrel for the first time and financial stocks tumbled on worries the companies face more federal regulation.

The Dow Jones industrials closed down 206 points, or 1.6%, to 12,814. The Standard & Poor's 500 Index fell 26 points, or 1.8%, to 1,393, and the Nasdaq Composite Index was off 45 points, or 1.8%, to 2,438.

The S&P 500's fall under 1,400 was a big disappointment because that mark has functioned as a strong resistance level for the market in the past month or so.

The sell-off could pressure stocks at the open on Thursday. The open will also be influenced by what major retailers, including Wal-Mart Stores (WMT, news, msgs), Target (TGT, news, msgs) and Macy's (M, news, msgs) have to say about their April sales. Those reports will come out before the open.

And Toyota Motor (TM, news, msgs) will report fourth-quarter profits as well.

Crude oil jumped to a new closing high of $123.53 a barrel in New York after a government report on labor productivity signaled the economy may be stronger than thought. Oil hit an intraday high of $123.80.

Plus, home-building stocks fell after an index of pending home sales from the National Association of Realtors fell in March from a year ago and suggested a housing rebound is still far off. Also hurting the shares: President Bush threatened to veto a housing-relief bill now before Congress.

Financial stocks tumbled after the Securities and Exchange Commission said it will require Wall Street investment banks to disclose their capital and liquidity levels, after speculation about a cash shortage at investment bank Bear Stearns (BSC, news, msgs) triggered a run on the company.

The SEC is re-evaluating its oversight of securities companies after the Federal Reserve helped rescue Bear Stearns in March to prevent a market panic. The SEC is pushing for more disclosure, urging investment banks to raise capital and asking companies to extend the terms of their borrowing agreements.

"One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence, there is great need for reliable, current information about capital and liquidity," SEC Chairman Christopher Cox told reporters in Washington today.

Maybe, but investors saw the result as lower profits and perhaps more bad news, so they sold financial stocks broadly. American International Group (AIG, news, msgs) was the Dow's loser today, falling 6.9% to $45.08.

American Express (AXP, news, msgs) fell 4.6% to $48.70, and Citigroup (C, news, msgs) was down 5.4% to $24.48.

Speculation continued to mount over whether Bank of America (BAC, news, msgs) will complete its deal for Countrywide Financial (CFC, news, msgs).

The selling was so broad that even energy stocks tumbled, despite the new highs for crude oil. ExxonMobil (XOM, news, msgs) was down 1.4% to $88.82. Chevron (CVX, news, msgs) fell 1.6% to $95.28.

Devon Energy (DVN, news, msgs) had jumped 5% to $120.33 on Tuesday on the strength of a big earnings report. Today, it opened at $123 today -- and then fell 5.3% from that level to $116.50. Devon is one of the biggest beneficiaries of a 51% increase in the price of natural gas this year.

Only six of the 30 Dow stocks were higher today, led by Walt Disney (DIS, news, msgs), up 2.9% to $34.70 after a better-than-expected second-quarter earnings report late Tuesday. Disney was also among the top 10 performing S&P 500 stocks.

Meanwhile, only 37 S&P stocks had gains, along with just nine stocks in the Nasdaq-100 Index ($NDX.X). The index fell 39 points or 2% to 1,951. Apple (AAPL, news, msgs) fell 2.2% to $182.59 and took nearly 6 points off the index.

• Top Stocks blog: Scary thought: Gasoline at $7.50 a gallon?

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$123.53	$121.84	$1.69	8.88%	28.70%
Heating oil (per gallon)	$3.4473	$3.3535	$0.0938	8.51%	30.12%
Natural gas (per million BTU)	$11.3270	$11.1500	$0.1770	4.46%	51.37%
Unleaded gasoline (per gallon)	$3.1182	$3.1055	$0.0127	6.38%	25.19%

More weakness ahead for housing?

Housing stocks took a dive today after the National Association of Realtors said its Pending Sales Index had fallen 1% in March from February and was down 20% from March 2007.

The index showed some strength in the Northeast but continued softness elsewhere. Weakness was most acute in the Midwest, where the index was off 22% from a year ago.

The index looks at signed home-sale contracts and offers clues to what existing-home sales for April and May might look like.

"The contraction in sales will continue," Kevin Logan, a senior market economist at Dresdner Kleinwort, told Bloomberg News. "There's less incentive to purchase when prices are falling. With banks restructuring the availability of credit, it is more difficult to get a loan."

• Video: Inside the pending home sales data

Because of the report, the Philadelphia Housing Sector Index ($HGX.X) was down 3.1% to 140. D.R. Horton (DHI, news, msgs) was off 6.6% to $15.74. Pulte Homes (PHM, news, msgs) fell 5.8% to $13.69.

Countrywide's woes mount

Countrywide Financial shares were down 7.5% to $4.94 today as speculation grew that its merger with Bank of America will crash or be renegotiated. It was the second-worst performer among S&P 500 stocks. Bank of America was off 3.2% to $38.

Standard & Poor's equity analysts wrote today that they believe Bank of America "will renegotiate a lower price due to large losses in CFC's loan portfolio." They value the shares at $6, on the expectations that the deal will be reworked.

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

Bank of America's recent regulatory filing intimating that the company may not guarantee Countrywide's debt has also increased the cost of default insurance.

Earlier this week, Paul Miller, an analyst at FBR Capital Markets, wrote that Bank of America could slash its offer from roughly $7.25 a share to $2 or less.

Countrywide's $95 billion loan portfolio has "deteriorated so rapidly" this year, Miller said, that buying the company could dent Bank of America's earnings or force the banking giant to raise additional capital.

Productivity rises

The Labor Department's report on first-quarter productivity showed some resilience in the U.S. economy. Productivity rose at a 2.2% annual rate, better than the 1.8% increase economists had expected and up from a 1.8% increase in the fourth quarter of 2007.

Unit labor costs, a key gauge of inflation, rose 2.2%, short of analysts' expectations of 2.6%. Year over year, labor costs were up 0.2%, the slowest rise since the second quarter of 2004.

Unit labor costs are the primary drivers of prices. Inflation concerns enter the picture when labor costs rise faster than productivity; if that occurs, higher labor costs are most often passed on to consumers as higher prices.

"We're getting more out of our workers, and it's not costing as much. That's good for people worried about inflation right now," Diane Swonk, the chief economist at Mesirow Financial in Chicago, told CNBC.

The number of hours worked fell 1.8% in the first quarter, the biggest drop in five years.

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Disney still has the magic

The optimists will be encouraged by Walt Disney's strong results.

Disney late Tuesday reported a 22% jump in fiscal-second-quarter earnings, sending shares higher on the day. Disney earned $1.3 billion, or 58 cents per share, up from $931 million, or 44 cents per share, a year ago. Analysts had expected earnings of 51 cents per share.

Revenue jumped 10% to $8.71 billion.

Analysts had been concerned about Disney's theme parks and resorts business, two lines of business that are especially vulnerable to broad weakness in the U.S. economy and rising gas prices. The surprise was that the weak U.S. dollar attracted droves of international tourists, sending the resorts' revenue up 11%, to $2.73 billion.

Disney's studio operations also did well, with revenue rising 18% to $1.82 billion, as "National Treasure: Book of Secrets" and "Hannah Montana/Miley Cyrus: Best of Both Worlds" scored big at the box office in the quarter.

• Top Stocks blog: Disney, a national treasure

Chief Executive Officer Bob Iger said the company is holding its ground.

"While we don't know where the marketplace will take us, we believe we're much better positioned in a difficult economic cycle than we were in the past," Iger said.

Cisco's sales beat the Street

The stock market drubbing undid decent news late Tuesday from technology bellwether Cisco Systems (CSCO, news, msgs).

Although Cisco's net earnings fell 5% in its fiscal third quarter, the networking company said sales rose 10% to $9.79 billion.

Cisco earned $1.77 billion, or 29 cents per share, down from $1.87 billion, or 30 cents per share, in the same period a year ago. Excluding one-time charges, Cisco earned 38 cents per share, 2 cents above the consensus estimate. Analysts had expected revenue of $9.75 billion.

Cisco had lowered its forecast for the quarter in February.

• Video: Cisco CEO John Chambers talks about the quarter

Cisco shares are down more than 24% since the company warned last November that it was seeing softness in orders from many of its U.S. customers. The company warned Tuesday and again today that U.S. business is not growing as fast as business from emerging markets.

The note of caution was a big reason that Cisco shares fell 2.1% to $25.78 today and were off an additional 0.2% to $25.74 in after-hours trading.

Tech players in wireless deal

There is a new wireless player coming to town.

Sprint Nextel (S, news, msgs) and Clearwire (CLWR, news, msgs) will merge their wireless broadband businesses to create a new wireless communications company worth about $12 billion. Intel (INTC, news, msgs), Google (GOOG, news, msgs), Comcast (CMCSA, news, msgs) and Time Warner Cable (TWC, news, msgs) will invest a combined $3.2 billion in the next-generation wireless venture. The investment is based on a target price of $20 for Clearwire shares, according to a press release, and would give the companies a combined 22% stake; Sprint will have a 51% stake in the venture.

• Video: A new wireless company is coming

The new company plans to deliver faster mobile Internet access for laptops and cell phones through WiMax technology, allowing it to better compete against rivals AT&T (T, news, msgs) and Verizon's (VZ, news, msgs) Verizon Wireless.

"In terms of economies of scale for WiMax, Sprint's deal is the biggest deal out there," Yankee Group analyst Phil Marshall told Bloomberg News. "The WiMax industry is holding out very high hopes for the Sprint network to be successful."

Clearwire shares fell 1.5% to $16.22. Sprint shares were off 0.3% to $9.16.

Day 4 of the post-Microsoft-Yahoo era

If you wanted big news on the aftermath of Microsoft's (MSFT, news, msgs) pulling its $47.5 billion offer for Yahoo (YHOO, news, msgs), there wasn't much. (Microsoft is the publisher of MSN Money.)

Microsoft Chairman Bill Gates repeated the company mantra: The company is moving on.

There was some grumbling about the narrow window that Yahoo had given shareholders who might want to propose a separate slate of directors at the company's annual meeting on July 3.

The Wall Street Journal said that Microsoft had contacted the bosses at Facebook wondering if they would consider a buyout of the social-networking site. The feelers, made by Microsoft's investment bankers, haven't gone anywhere yet.

And a Lehman Bros. analyst said he thought Yahoo was worth $23 a share "on the fundamentals."

According to Seeking Alpha, Douglas Annuth said he's concerned about near-term trends in Yahoo’s business, with decelerating revenue growth from Yahoo-owned sites.

Assuming the economy holds its own, the company could report modestly higher profits this year. But he had "little confidence" in Yahoo’s recent projections for 2009 and 2010.

He also said that outsourcing search to Google would sacrifice long-term gains for short-term profits.

Despite today's market slump today, Yahoo shares were off just 0.3% to $25.64. Microsoft fell 1.7% to $29.21.

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

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.630%	1.595%	0.035	21.64%	-48.09%
5-year Treasury note yield	3.101%	3.145%	-0.044	2.24%	-10.25%
10-year Treasury note yield	3.867%	3.893%	-0.026	2.87%	-4.16%
30-year Treasury bond yield	4.622%	4.642%	-0.020	2.78%	3.66%
Currencies
U.S. Dollar Index	73.690	73.175	0.515	1.33%	-3.92%
British pound in dollars	$1.9547	$1.9550	-0.0004	-1.68%	-1.74%
Dollar in British pounds	£0.5116	£0.5115	0.0001	1.71%	1.77%
Euro in dollars	$1.5413	$1.5406	0.0007	-1.33%	5.46%
Dollar in euros	€ 0.6488	€ 0.6491	-0.0003	1.34%	-5.17%
Dollar in yen	104.62	104.63	-0.01	0.66%	-6.46%
Canadian dollar in U.S. dollars	$0.992	$0.991	$0.0008	-0.18%	-0.08%
U.S. dollar in Canadian dollars	$1.009	$1.010	-$0.0008	0.27%	0.10%
Commodities
Gold	$871.20	$877.70	-$6.50	0.71%	3.96%
Copper	$3.8630	$3.8785	-$0.02	-1.06%	27.03%
Silver	$16.6950	$16.8600	-$0.16	0.61%	11.90%
Corn	$6.1300	$6.0625	$0.07	2.12%	34.58%
Crude oil (NYMEX) (per barrel)	$123.53	$121.84	$1.69	8.88%	28.70%