Dow falls 203; energy, GM slam market

By Charley Blaine and Elizabeth Strott

Stocks sagged this afternoon to their lowest levels since the spring of 2003 as as selling hit energy and commodity stocks and gutted what had been a robust rally.

At the close, the Dow Jones industrials were down 203 points, or 2.4%, to 8,176. The Standard & Poor's 500 Index was down 28 points, or 3.2%, to 849. The Nasdaq Composite Index was down 46 points, or 3%, to 1,506.

The Dow's and S&P 500's closes were their lowest since April 1, 2003 and March 31, 2003, respectively, as the invasion of Iraq increasingly looked successful. The Nasdaq's close was its lowest since May 23, 2003.

It was another of those depressing days where a strong rally suddenly collapsed. The Dow had been up as much as 220 points at 1:40 p.m. ET and dropped more than 400 points in the following 80 minutes.

"There are still distressed sellers who want to get out on any strength," Jeffrey Davis, chief investment officer at Lee Munder Capital Group in Boston, told Bloomberg News.

A decline in energy stocks appeared to be the biggest drag on the market after crude oil dropped from $65.77 to a close of $63.22 in the last hour or so of trading. Crude finished down 1.5% on the day and is down more than 57% from its peak of $147.27 a barrel in July.

ExxonMobil (XOM, news, msgs), which had been up 2.8% at 1:45 p.m. ET, closed down 4.3%, to $66.09. Chevron (CVX, news, msgs) was off 3.4% to $61.71. The Amex Oil Index ($XOI.X) was down 5.7% to 770.62.

Automakers were mostly lower because of concerns about the viability of General Motors (GM, news, msgs) and Chrysler Group who are discussing a potential merger. GM was down 8.4% to $5.45 after Moody's cut the automaker's ratings and was the worst performer among the 30 Dow stocks. Rival Ford Motor (F, news, msgs) was up 1% to $2.03.

Offsetting crude were three catalysts:

• Gains for regional banks after 14 lenders incluing SunTrust Banks (STI, news, msgs) accepted about $31 billion in government cash as the Treasury rolled out the second half of its $250 billion package to rescue the financial system. Huntington Bancshares (HBAN, news, msgs) was the leader among S&P 500 stocks, up 15.9% to $9.27. SunTrust was up 4.4% to $36.66.

• Better-than-expected earnings from telecom company and Dow component Verizon Communications (VZ, news, msgs), up 11.1% to $27.86. Verizon's gain added some 22 points to the Dow.

• A better-than-expected Commerce Department report on new home sales. Home building shares were higher.

The laggards today were metals and technology stocks. U.S. Steel (X, news, msgs) was down 11.3% to $30.82. Nucor (NUE, news, msgs) fell 9.6% to $31.64. Freeport McMoRan Copper & Gold (FCX, news, msgs), once up 5.4%, finished down 4.5% to $23.75.

U.S. Steel was cut to "sell" from "buy" by analysts at UBS, who said they are "increasingly cautious'' on earnings as conditions in the U.S. worsen

Among tech stocks, Microsoft (MSFT, news, msgs) was down 3.6% to $21.18. Google (GOOG, news, msgs) was off 2.9% to $329.49. Apple (AAPL, news, msgs) was off 4.5% to $92.09. (Microsoft is the publisher of MSN Money.)

Despite today's losses, stocks may open slightly higher on Tuesday, futures trading tonight suggests.

Some 750 companies report quarterly profits, including Honda (HMC, news, msgs), Royal Caribbean Cruises (RCL, news, msgs), U.S. Steel (X, news, msgs) and Whirlpool (WHR, news, msgs).

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$63.22	$64.15	-$0.93	-37.18%	-34.13%
Heating oil (per gallon)	$1.9144	$1.9465	-$0.0321	-33.12%	-27.74%
Natural gas (per million BTU)	$6.1210	$6.1320	-$0.0110	-17.71%	-18.20%
Unleaded gasoline (per gallon)	$1.4769	$1.4779	-$0.0010	-40.56%	-40.71%

Will the S&P 500 hold at 840?

With today's close, the Dow is 42% off its Oct. 9, 2007 all-time high but 3.7% above its Oct. 10 intraday low of 7,882.51.

The S&P is down nearly 46% from its all-time high but just 1% above its Oct. 10 low of 840.54.

The big fear for many traders is what happens if the Dow and the broader S&P 500 fall below those intraday lows. A big break below those levels could push the market even lower, possibly to their lows in October 2002.

The Nasdaq, the Nasdaq-100 and the Russell 2000 Index already breached their Oct. 10 lows.

The Dow's 24.7% loss so far in October is its worth monthly performance since September 1931. Its two-month loss of 29.2% is its sixth-worst 2-month loss ever and the worst since October-November 1987.

The market bottom watch

Index	Monday	Chg. From Oct. 10 low	Oct.10 low
Dow Jones Industrial Average	8,175.77	3.72%	7,882.51
Standard & Poor's 500 Index	848.92	1.00%	840.54
Nasdaq Composite Index	1,505.90	-2.37%	1,542.45
Nasdaq-100 Index	1,169.78	-2.20%	1,196.11
Russell 2000 Index	448.40	-4.17%	467.92

Uncle Sam nears offering aid to GM

Despite huge amounts of skepticism, momentum seems to be building toward helping a General Motors-Chrysler merger.

The Department of Energy is working to release $5 billion in loans to General Motors, The Wall Street Journal reported late today.

The funds would come from a pool of $25 billion in low-interest loans approved by Congress to help Detroit retool its plants to meet new fuel-efficiency standards. It's not clear how quickly the money could be made available or whether it would come with strings attached.

The disclosure came after the close as GM shares fell to $5.45. The shares were down an additional 2.9% to $5.29 after hours.

An Energy Department spokeswoman said today that the agency is "in the process of developing the rules for the loan program." Setting a timetable for when the funds are available would be "premature," the spokeswoman said.

The agency has come under criticism from prominent Michigan lawmakers in both parties after initially saying in September it could take "at least 6 to 18 months or more" to disburse the loans, which are expected to chiefly benefit GM, Chrysler and Ford.

Any direct infusion of capital into the ailing auto industry would reverse the administration's long held reluctance to bail out the failing domestic automobile industry.

But Detroit's problems have become more acute during the global credit meltdown although GM, Ford and Chrysler have ruled out bankruptcy as an option. They are burning through cash, and their performance outlook has worsened. Those concerns prompted Moody's to downgrade GM's credit rating.
Industry supporters in and out of government have mounted a furious lobbying campaign to tie the health of automakers to the needs of the general U.S. economy, and have elevated the bailout discussion to the presidential campaign.

New home sales up on price cuts

New-home sales rose 2.7% from August to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from the August level.

The median price of a new home sold in September declined by 9.1% from a year ago to $218,400 -- the lowest level since September 2004, when the five-year housing boom was accelerating.

Despite the gain from August, the sales rate was still down 33.1% from a year ago.

Regionally last month, new-home sales were up 22.7% in the West, down 21.4% in the Northeast, down 5.8% in the Midwest and up 0.7% in the South.

The gain mirrors a report last week that the sales of existing homes rose in September by 5.5%, the largest monthly gain in more than five years. The report jumped as lenders aggressively cut prices on homes acquired in foreclosures.

The report initially helped homebuilding shares. But they fell apart in the last hour of trading.

Nonetheless, homebuilding shares were rallying. Ryland (RYL, news, msgs), up as much as 5% in the morning, fell 5.3% on the day to $15.02. Pulte Homes (PHM, news, msgs) saw a 5.8% gain turn into a 1% loss to $8.42. Home improvement retailer Lowe's (LOW, news, msgs) fell 2% to $16.85. But rival Home Depot (HD, news, msgs) finished up 2.2% to $18.91.

Worldwide turmoil continues

Asian and European markets fell today amid continued worries about a worldwide recession.

That was a huge disappointment for many traders.

"After last week's turmoil in equity markets, many had been hoping that the new week would bring about a degree of stability, but at least so far there's little to suggest this will be the case," said Matt Buckland, a trader with the London brokerage CMC Markets.

In Asia, stocks were mostly lower. Japan's Nikkei 225 Index ($N225) fell 6.4% to 7,163 -- a 26-year low -- and Hong Kong's Hang Seng Index ($HSI.X) plunged 12.7% to 11,016, its lowest level since May 2004.

South Korea's Composite Stock Price Index managed to close up 0.8% after the South Korean central bank cut interest rates by three-quarters of a percentage point to 4.25%, its biggest cut ever.

European stocks pulled off earlier lows. London's FTSE 100 Index ($GB:UKX, news, msgs) was up 0.2%, and the Paris CAC 40 Index ($FR:PX1) was down 2.3%. The broader Dow Jones Stoxx 600 Index was down 1%.

Alistair Darling, Britain's Chancellor of the Exchequer, said that the United Kingdom's economic situation is worse than originally thought, according to the Sunday Times.

Prime Minister Gordon Brown and Bank of England Gov. Mervyn King last week said Britain was heading toward recession.

This morning, European Central Bank President Jean-Claude Trichet hinted that the central bank could cut rates at its Nov. 6 meeting.

Fed may cut rates

The Federal Reserve will likely take yet another step to try to prevent a lasting recession by cutting interest rates at the Federal Open Market Committee meeting this week.

Economists expect the Fed to lower the federal funds rate -- the rate banks charge each other for loans -- to 1% from 1.5%. The Fed has been lowering interest rates over the past year in an effort to reboot the economy; the central bank has cut rates seven times since September 2007, when the fed funds rate was 5.25%.

"The combination of what is now a global recession and a still-fragile banking sector will lead the Fed to cut the funds rate," Richard Moody, chief economist at Mission Residential, told MarketWatch.com.

The last time the federal funds rate was at 1% was between June 2003 and June 2004.

Consumers saving more at the pump

As crude has come down, so have pump prices.

The Lundberg Survey, a separate survey of 5,000 service stations around the country, said the average price of gas was $2.78 a gallon, down from $3.31 on Oct. 10.

The steep decline -- 53 cents in two weeks -- was the biggest two-week drop in the Lundberg Survey's 60-year history.

AAA's daily Fuel Gauge report put the average price of regular unleaded gasoline tumbled to $2.668 a gallon today. That's down 3 cents from Sunday and down 35% from the survey's record high of $4.114 a gallon on July 17.

G7 concerned about yen

As global financial turmoil has exploded, investors have fled to two safe havens: the dollar and, especially, the Japanese yen.

The yen's rise is startling: 7% against the dollar last week and nearly 12% in October alone. That spells disaster for Japanese industries that rely heavily on exports. Late Sunday, the Group of Seven major industrialized nations issued a cautionary statement about the yen.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," G7 finance ministers and central bank chiefs said in a statement. "We will continue to monitor markets closely and cooperate as appropriate."

Perhaps the statement is working. The dollar was at 92.97 yen this afternoon, up 0.4% from Friday when it was at 92.62. It hit as low as 94.32, a 13-year low against the Japanese currency.

"A warning salvo has been fired," wrote Patrick Bennett, a foreign-exchange and rates strategist with Societe Generale in Hong Kong. "The warnings should permit some degree of calm to develop, but cannot in and of themselves reverse the de-leveraging flow that are the drivers of the moves in the first place."

The Group of Seven includes the United States, Japan, Germany, France, Great Britain, Canada and Italy.

GDP expected to contract

The Commerce Department is expected to report on Thursday that the U.S. economy contracted in the third quarter.

Economists expect a 0.5% decline in gross domestic product, the biggest drop since the 2001 recession. Consumer spending, which makes up about two-thirds of the economy, is expected to shrink by 2.4%, the first decline in nearly 20 years. Consumers have been slammed by the financial turmoil in the stock markets, mounting job losses, soaring food prices and plummeting housing prices.

• Read more:Retailers face not-so-happy holidays

"I don't see how the consumer can do anything but retrench," Robert McTeer, former president of the Fed Bank of Dallas, told Bloomberg Television last week. "If they all do it at the same time, it will really tank the economy."

The economy grew at a 2.8% rate in the second quarter of 2008.

GDP has not fallen since the fourth quarter of 2007, when it contracted by 0.2%.

Job cuts coming at GE

General Electric (GE, news, msgs) is the latest company preparing to eliminate jobs to try to control costs and weather the economic slowdown.

In an interview with The Wall Street Journal, GE Chief Executive Officer Jeff Immelt said that "costs will be lower in 2009 than in 2008," adding that employment will be lower as well. Immelt did not give any specifics, however.

GE shares were down 0.6% to $17.73.

Short hits from the markets -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.730%	0.820%	-0.090	-18.89%	-76.75%
5-year Treasury note yield	2.651%	2.603%	0.048	-11.22%	-23.27%
10-year Treasury note yield	3.729%	3.697%	0.032	-2.56%	-7.58%
30-year Treasury bond yield	4.105%	4.087%	0.018	-4.65%	-7.94%
Currencies
U.S. Dollar Index	87.610	86.950	0.660	10.40%	14.23%
British pound in dollars	$1.5579	$1.5755	-0.0177	-12.60%	-21.69%
Dollar in British pounds	£0.6419	£0.6347	0.0072	14.42%	27.69%
Euro in dollars	$1.2506	$1.2553	-0.0047	-11.31%	-14.43%
Dollar in euros	€ 0.7996	€ 0.7966	0.0030	12.75%	16.87%
Dollar in yen	92.97	92.62	0.35	-12.32%	-16.88%
Canadian dollar in U.S. dollars	$0.774	$0.782	-$0.0085	-17.75%	-22.08%
U.S. dollar in Canadian dollars	$1.293	$1.278	$0.0151	21.60%	28.35%
Commodities
Gold	$742.90	$730.30	$12.60	-15.66%	-11.35%
Copper	$1.8050	$1.6865	$0.12	-37.30%	-40.64%
Silver	$9.1950	$9.2950	-$0.10	-25.09%	-38.37%
Corn	$3.8525	$3.7275	$0.13	-20.97%	-15.42%
Crude oil (NYMEX) (per barrel)	$63.22	$64.15	-$0.93	-37.18%	-34.13%