Dow off 101 as financials slump again

By Charley Blaine and Elizabeth Strott

For maybe an hour this afternoon, the stock market looked like it was on the verge of a major sell-off.

Rumors were swirling around Wall Street that investment bank Lehman Bros. (LEH, news, msgs) was in deep trouble and needed emergency financing from the Federal Reserve.

But Lehman strongly denied that it had asked the Fed for any help. It insisted it isn't destined for a fate like that of investment house Bear Stearns, which collapsed in March and finally was taken over by JPMorgan Chase (JPM, news, msgs).

Investors and traders finally bought the story, and Lehman shares rebounded from a low of $28.90, or a loss of nearly 15%, to $30.50, down 9.8% on the day.

Lehman's rebound helped the Dow Jones industrials, down as many as 162 points, trim its losses. Still, the blue-chip index finished with a loss of 101 points, or 0.8%, to 12,403. In two days of trading this week, the blue-chip index has fallen 235 points or 1.9%.

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The Standard & Poor's 500 Index closed down 8 points, or 0.6%, to 1,378, and the Nasdaq Composite Index lost 11 points or 0.4%, to 2,480.

The Lehman Bros. episode revealed some unpleasant truths about stocks for now, including:

• The subprime and credit crisis that erupted nearly a year ago isn't over.

• Many investors are still nervous about financial stocks in the specific and even the market overall. So, they're not willing yet to commit new cash to the market. You can see this reality in the daily market volume. Volume on the New York Stock Exchange was about 1.3 billion shares; normal is around 1.6 billion shares.

And because of both concerns, even the slightest whiff of weird news can unleash some wacky selling.

A market with a lot of cross currents

Today's market slump came as housing stocks rebounded strongly on suggestions that big price drops in markets such as South Florida and California were bringing out home buyers. NBC News cited the example of a Cape Coral, Fla. home that sold for $619,000 a couple of years ago. It sold fairly quickly for $291,000 last month.

Tech stocks were weak again. Apple (AAPL, news, msgs) was off 0.4% to $185.37. Google (GOOG, news, msgs) was down 1.3% to $567.30.

Boeing (BA, news, msgs) was the worst performer among the 30 Dow stocks, falling 3.7% to $78.12, in large part because of the worsening financial condition of the global airline business.

General Motors (GM, news, msgs) shares, which had tumbled in the early afternoon, finished up 0.8% to $17.58. The company reported a 30% decline in May sales, thanks to a collapse in sales of trucks and large SUVs. GM, which had been the Dow's biggest loser in May, had been up as much as 4% earlier today after announcing it would close four plants.

Crude oil, meanwhile, closed down 2.7% to $124.31 a barrel as the dollar moved higher. Energy stocks fell back as well. ExxonMobil (XOM, news, msgs) fell 2.4% to $85.71. Oil and gas producer Apache (APA, news, msgs) slumped 3.7% to $130.91.

Only 10 Dow stocks finished with gains, along with 189 S&P 500 stocks and 37 stocks in the Nasdaq-100 Index($NDX.X). The latter index was off 10 points, or 0.5%, to 1,997.

Lehman pays the price -- again

Lehman Bros. was the market's focal point all day after The Wall Street Journal said the company was considering a plan that would raise up to $4 billion in capital to help shore up its balance sheet.

In two weeks, the company is expected to report its first quarterly loss since going public in 1994. The Wall Street Journal suggested that the discussion of new financing may prefigure a quarterly loss larger than the $300 million Wall Street now expects.

Later, however, Reuters reported that Lehman doesn't need to raise capital and would do so only if the right market opportunity presented itself or if the company thought it would help investor perceptions.

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On Monday, Standard & Poor's cut the ratings on several banks, including Lehman, citing the likelihood of further write-downs. The move sent jitters through the financial sector and weighed heavily on markets overall.

Lehman is expected to report a second-quarter loss of 50 cents to 75 cents per share the week of June 16.

Bernanke: Fed may be done with rate cuts

Federal Reserve Chairman Ben Bernanke signaled strongly today that the central bank is done cutting rates.

Bernanke told the International Monetary Conference, meeting in Barcelona, Spain, that the Fed is very concerned about the "unwelcome rise" in inflation because of the dollar's 16% decline against the euro over the last year. Interest rates, he said, were "well positioned" to promote growth and stable prices.

Credit markets saw that as a signal that the Fed would leave its benchmark federal funds rate at 2% when it meets later this month. And there was some speculation the Fed might raise the rate later this year. The speech, which was televised from Washington, D.C., helped the dollar rise against the euro, the British pound and the Japanese yen.

At the same time, Bernanke remained concerned about the weak economy. "Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside."

Bernanke still sees economic growth improving later this year, thanks to the Fed's moves to put cash into the credit markets and the government's fiscal stimulus package and solid growth elsewhere in the world.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$124.31	$127.76	-$3.45	-2.30%	29.52%
Heating oil (per gallon)	$3.6396	$3.7220	-$0.0824	-0.70%	37.37%
Natural gas (per million BTU)	$12.2210	$11.9690	$0.2520	4.37%	63.32%
Unleaded gasoline (per gallon)	$3.3525	$3.3907	-$0.0382	0.13%	34.60%

Automakers post weak May sales

Ford Motor (F, news, msgs) said its May sales fell 16%, with the worst problems coming with pickups. Ford said car sales improved, rising 2.8% last month, but truck sales plunged 25.8%.

Its flagship F-series pickups, in fact, were outsold by the Honda (HMC, news, msgs) Civic and Accord and the Toyota (TM, news, msgs) Camry and Corolla. Ford closed up 0.6% to $6.68.

General Motors said its sales fell 28%. Adjusted for an extra sales day compared with a year ago, the decline was more than 30%.

With the average price of regular gasoline hitting records -- it's at $3.978 a gallon today -- automakers are suffering as consumer preferences shift away from profitable SUVs and trucks.

The new preference for smaller vehicles is leaving the domestic automakers "in bad shape compared with Toyota and Honda," Edmunds.com editor Michelle Krebs told MarketWatch.

GM's sales decline was larger than Wall Street's expectation of a 19% drop. Truck and SUV sales fell 37% to 138,777 vehicles from 220,077 vehicles a year ago.

GM also said about 100,000 sales, including 15,000 to 18,000 potential fleet vehicles, were lost in May due to a work stoppage at parts supplier American Axle.

Ford sales dropped 16% because pickup and SUV sales fell 26%, and Chrysler sales were down 25%.

Toyota sales were off 4%. Honda said its sales jumped 18% overall, with car sales up 36% offsetting an 8% decline in truck sales. Nissan (NSANY, news, msgs) said its sales rose 8%, with a 19%increase in car sales offsetting a 10% decline in trucks.

Last month Ford announced that it wouldn't be profitable by 2009 -- a goal publicly announced by CEO Alan Mulally -- blaming soaring oil prices and the waning popularity of gas guzzlers.

GM to close plants

GM said it was closing four truck plants in North America to respond to the shift away from big vehicles.

The automaker also said it will change its product mix to 60% cars from the current level of 50%. In addition, GM said it may consider selling its Hummer brand.

• Video: GM moves away from big vehicles

Gasoline prices at $4 a gallon represent "a structural change, not just a cyclical change," CEO Rick Wagoner told reporters this morning at the company's annual meeting.

The plant closures will save GM approximately $1 billion a year and will reduce North American truck capacity by 700,000 vehicles, the company said. The exact number of jobs that will be cut was unclear.

The automaker said its electric-powered Chevy Volt should hit sales floors by 2010. "We believe this is the biggest step yet in our industry's move away from our historic, virtually complete reliance on petroleum to power vehicles," Wagoner said.

Icahn vows to remove Yahoo's Yang as CEO

Shareholder activist Carl Icahn said today he'll seek to remove Jerry Yang as Yahoo's (YHOO, news, msgs) CEO if the Icahn's bid to take control of the company's board is successful. The Yahoo board is scheduled to meet today.

In an interview with The Wall Street Journal, Icahn accused Yang and the company's board of being disingenuous about their willingness to consider Microsoft's (MSFT, news, msgs) acquisition offer, and of taking costly steps to deter any deal. (Microsoft is the publisher of MSN Money.)

Icahn recently filed a proxy slate to replace Yahoo's board and to bring both sides back to the bargaining table. The billionaire investor said he'll make a public statement highlighting his concerns about the actions of Yang and the Yahoo board.

Yahoo said it will hold its annual shareholderholders meeting on Aug. 1 in San Jose, Calif.

Icahn's comments came after a Delaware Chancery Court judge unsealed a class-action lawsuit against Yahoo late Monday.

Chancellor William Chandler said that Yahoo has "not satisfied (its) burden to show good cause" to keep it under seal.

The suit, originally filed in February by the Police & Fire Retirement System and the General Retirement System of the city of Detroit, alleges that Yahoo breached its fiduciary duty to shareholders by not negotiating with Microsoft about a merger.

Microsoft offered $31 per share for Yahoo on Feb. 1, but Yahoo rejected the offer as too low. Then on May 4, Microsoft withdrew a sweetened bid of $33 per share. The court papers said that Microsoft offered $40 per share last year, when rumors first circulated that the software giant was interested in Yahoo.

"Whoever's suing the Yahoo management and board of directors, if they had a $40 offer and didn't take it and the stock is now $26, they're going to want to cut their throats for being that stupid," BP Capital Chairman T. Boone Pickens, a Yahoo shareholder, told Bloomberg Television. "Anybody who sued them has got a good lawsuit, I'd say. I'd hate to be on that board of directors right now."

Microsoft closed down 1.8% to $27.311; Yahoo was off 1% to $26.15.

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

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.810%	1.790%	0.020	-2.16%	-42.36%
5-year Treasury note yield	3.191%	3.281%	-0.090	-6.34%	-7.64%
10-year Treasury note yield	3.898%	3.971%	-0.073	-3.66%	-3.40%
30-year Treasury bond yield	4.622%	4.679%	-0.057	-1.81%	3.66%
Currencies
U.S. Dollar Index	73.300	72.990	0.310	0.49%	-4.43%
British pound in dollars	$1.9627	$1.9670	-0.0042	-1.04%	-1.33%
Dollar in British pounds	£0.5095	£0.5084	0.0011	1.05%	1.35%
Euro in dollars	$1.5442	$1.5547	-0.0106	-0.74%	5.65%
Dollar in euros	€ 0.6476	€ 0.6432	0.0044	0.77%	-5.35%
Dollar in yen	105.13	104.41	0.72	-1.21%	-6.01%
Canadian dollar in U.S. dollars	$0.991	$0.999	-$0.0079	-1.59%	-0.20%
U.S. dollar in Canadian dollars	$1.010	$1.001	$0.0089	1.66%	0.22%
Commodities
Gold	$885.50	$882.10	-$11.50	-0.19%	5.67%
Copper	$3.5780	$3.5965	-$0.02	-0.75%	17.66%
Silver	$16.8350	$16.9100	-$0.07	-0.16%	12.84%
Corn	$6.0800	$6.1575	-$0.08	1.46%	33.48%
Crude oil (NYMEX) (per barrel)	$124.31	$127.76	-$3.45	-2.30%	29.52%

Toll Bros. reports loss

Homebuilder Toll Bros. (TOL, news, msgs) today reported a second-quarter loss of $93.7 million, or 59 cents per share -- a drop from a year ago's net income of $36.7 million, or 22 cents a share.

Revenue fell 30% to $818.8 million.

Still, shares rose 3.1% to $21.60, because the loss wasn't as bad as the 89-cent loss analysts had expected.

And other building stocks rose as well. Pulte Homes (PHM, news, msgs) rose 4% to $12.68. Hovnanian (HOV, news, msgs) jumped 6% to $8.34.

Factory orders rise

A report on factory orders showed some strength in April.

Factory orders rose 1.1% in April, the Commerce Department reported today -- better than economists' expectations of a 0.1% increase. The boost came mostly from the recent jump in gasoline prices.

Excluding orders for petroleum goods, factory orders rose 0.4%.

"The manufacturing sector is still holding its own," said Russell Price, senior economist at H&R Block Financial Advisors, to Bloomberg News.