Dow off 177 despite mortgage aid plan

By Charley Blaine and Elizabeth Strott

Stocks suffered their fourth loss in the last five sessions, despite government and lender plans to renegotiate thousands of troubled mortgages and crude oil's first close below $60 a barrel in 20 months.

The Dow Jones industrials fell 177 points, or 2%, to 8,694. The Standard & Poor's 500 Index was down 20 points, or 2.2%, to 899, and the Nasdaq Composite Index was off 36 points, or 2.2%, to 1,581.

The declines in U.S. markets followed sell-offs in Asia and Europe. But futures trading late today is signalling that the Dow and S&P 500 will open higher on Wednesday.

The sell-off was broad: All 30 stocks in the Dow were lower, along with 413 S&P 500 stocks and 85 stocks in the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks. The index was down 25 points, or 2%, to 1,226.

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

General Motors (GM, news, msgs) was the weakest of the Dow stocks, falling 13.1% to $2.92 as a huge debate began over whether to save the largest U.S.-headquartered automaker. House Speaker Nancy Pelosi said today she would support offering aid to the beleaguered auto industry. What wasn't clear was how much aid would be involved and what the terms of any assistance might be.

GM's close was its lowest since Feb. 4, 1943, according to Global Financial Data in Los Angeles. The closing price pushed its market capitalization under $1.8 billion -- roughly 0.3% of the market cap of ExxonMobil (XOM, news, msgs).

The market had opened weakly, with the Dow down as much as 310 points by 12:30 p.m.

The market very nearly recovered all of its losses around 2 p.m. ET as officials outlined their new mortgage modification plan for loans held by Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs). The goal is to get troubled homeowners an affordable mortgage payment and try to limit foreclosures.

But soon after, selling pressure reappeared even as crude oil fell below $60 a barrel for the first time since early 2007.

Fannie Mae, Fredddie Mac and other lenders will rewrite the terms on some overdue mortgages so the homeowners won't pay more than 38% of their incomes.

• Meltdown 101: Mortgage help from banks, government

Modifications could include deferring some of the principal owed, lowering interest payments or extending maturities to as much as 40 years. The process will be streamlined and uniform.

"We need to stop this downward spiral," said James Lockhart, director of the Federal Housing Finance Agency.

Fannie Mae and Freddie Mac, which guaranteed more than half of the outstanding value of mortgages in the United States, have been under government receivership since September.

About 20% of delinquent loans were guaranteed by the two government-sponsored entities, according to FHFA.

A number of lenders, including Citigroup (C, news, msgs), Bank of America (BAC, news, msgs) and JPMorgan Chase (JPM, news, msgs), have halted foreclosures and are starting to work with borrowers to try to keep them in their homes.

Citigroup said late Monday it will modify the terms of about $20 billion in mortgages affecting 500,000 borrowers.

It will halt foreclosure on the home of any eligible borrower who plans to stay in a home if it is the borrower's principal residence, the homeowner is working in good faith with Citigroup and the homeowner has sufficient income to make affordable mortgage payments.

Citigroup will target areas that have higher-than-normal foreclosure rates, like California and Florida. The bank said it has already helped about 370,000 families avoid foreclosure, representing about $35 billion in mortgages.

Fear is pushing the markets

Today's early slump -- and the selling that came in the late afternoon -- reflected continued worries that GM may collapse, lousy corporate earnings from home builder Toll Bros. (TOL, news, msgs) and coffee chain Starbucks (SBUX, news, msgs), weak retail sales and slumping commodity prices, especially the price of oil.

The selling probably anticipates weak earnings from department store chain Macy's (M, news, msgs), due on Wednesday, and Kohl's (KSS, news, msgs), Nordstrom (JWN, news, msgs) and Urban Outfitters (URBN, news, msgs) on Thursday.

The report that will be most closely watched on Thursday: Wal-Mart Stores (WMT, news, msgs).

Crude oil closed down 4.9% to $59.33 a barrel in New York, its first close below $60 since March 2007. Crude is down nearly 60% since July's and 38% on the year. Its decline has given consumers a huge gift: The national average price of gasoline, now $2.22 a gallon, is down 46% from its peak of $4.114 a gallon in July, according to AAA's Daily Fuel Gauge Report.

Crude may fall further. One catalyst will come Thursday when the International Energy Agency issues its latest demand forecast. Many analysts see the IEA will cut its 2009 oil demand forecast for the third consecutive month.

The decline in energy prices hit energy stocks. The Amex Oil Index ($XOI.X) fell 4.1% to 913. The Philadelphia Oil Service Sector Index ($OSX.X) was off 4.7% to 140.

• Top Stocks blog: Why oil may be headed to $200+

In addition, metals stocks were dumped. Freeport-McMoRan Copper & Gold (FCX, news, msgs) fell 9.8% to $24.78; U.S. Steel (X, news, msgs) was off 4.8%to $32.38, and Dow component Alcoa (AA, news, msgs) dropped 7.1% to $10.94.

Wall Street has been anticipating grim results from corporate America, but it doesn't know yet how bad they could get. "We're in a situation where we really don't know how deep a recession we're in," Jim Herrick, manager of equity trading at Baird & Co., told The Associated Press.

One problem that has been worsening is the health of mall developer and operator General Growth Properties (GGP, news, msgs).

The stock fell 64% to 49 cents today after the company, the nation's second-largest mall owner, warned it faces solvency trouble and may be forced to file for bankruptcy if it can't refinance or extend nearly $1 billion in debt due next month.

The real estate investment trust's big-name holdings include Chicago's Water Tower Place and Fashion Show in Las Vegas.

There were no economic reports today because of the Veterans Day holiday. The bond market was also closed today.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$59.33	$62.41	-$3.08	-12.51%	-38.19%
Heating oil (per gallon)	$1.9290	$2.0056	-$0.0766	-3.85%	-27.19%
Natural gas (per million BTU)	$6.7050	$7.2480	-$0.5430	-1.15%	-10.40%
Unleaded gasoline (per gallon)	$1.3059	$1.3679	-$0.0620	-9.39%	-47.57%

What the hedge funds will tell us

The market could see some volatility toward the end of the week if hedge funds are forced to unload stocks, bonds and other assets to pay off investors who want to cash in a portion of their positions.

Hedge funds typically offer investors four windows a year to redeem their holdings. Friday's is the last for the year.

How big the redemptions will be isn't clear. Many hedge funds have been raising cash for weeks anticipating redemptions.

Many hedge funds will be filing reports with the Securities and Exchange Commission this week as well that will offer a glimpse into the damage they suffered in October.

Life insurers hit on Goldman note

A number of insurance stocks tumbled today after Goldman Sachs changed its view on the sector to "cautious" from "neutral" because it expects asset deterioration to continue.

Over the next 12 to 18 months, analyst Chris Neczypor wrote in a research note, life insurers will face further deterioration in assets and increased losses from guarantees embedded in annuity products.

Lincoln National (LNC, news, msgs), Prudential Financial (PRU, news, msgs)Prudential Financial Group (PFG, news, msgs) and Hartford Financial Services (HIG, news, msgs) may need to raise capital and face the possibility of ratings downgrades.

Lincoln National dropped 15.3% to $16.31. Prudential was off 10.8% to $27.61. Hartford Financial fell 22.8% to $11.24, and Principal Financial fell 14.9% to $20.63. The four were among the 20 worst-performing S&P 500 stocks.

Toll Bros. home sales sink

Toll Bros. said today it expects to report that quarterly homebuilding revenue fell 41% to $691 million from a year ago as the housing market continues to slump.

However, the company didn't say how the bottom line was affected. The company has reported $301 million in losses over the previous four quarters.

Toll Bros. shares had opened down 5.8% but rebounded to a 4.1% gain as news on the government's mortgage plan came out. It fell back, however, to a loss of two cents at $18.93.

The backlog of unsold homes fell 54% to $1.33 billion. Cancellations rose to 233, or 30% of all of the company's contracts.

• Learn how to invest with our New Investor Center

Any signs seen in early September of recovery in the housing market have disappeared amid the financial crisis, CEO Robert Toll said this morning.

"Home-buyer confidence and our traffic and demand are down to record lows," Toll said in a statement. "The government's efforts must concentrate on stopping the decline in home prices by bringing potential buyers back into the market."

"There's little doubt that a weakening economy represents a significant threat to home-building demand, even at the historically low levels it has already reached," Deutsche Bank analysts Nishu Sood and Rob Hansen wrote in a note to clients. Toll's home orders have been falling year over year for the past 13 quarters, they said.

The five largest U.S. homebuilders reported a combined $1.09 billion in losses in their most recent quarters as the credit crunch has prevented many consumers from getting mortgages. About 70% of U.S. banks surveyed indicated they have tightened standards on prime mortgage loans, the Federal Reserve said on Nov. 3 in its quarterly Senior Loan Officer Survey.

American Express becomes a bank

American Express (AXP, news, msgs) is the latest company to convert itself to a bank holding company.

The Federal Reserve approved the credit card company's request late Monday, waiving the normal 30-day waiting period "in light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances."

The move will give AmEx access to low-cost financing from the Fed.

Goldman Sachs (GS, news, msgs) and Morgan Stanley (MS, news, msgs) received approval from the Fed to become bank holding companies in late September, after they were slammed by the financial market meltdown.

American Express shares fell 6.6% to $22.40 today.

Bitter taste for Starbucks

Starbucks posted a whopping 97% drop in fiscal-fourth profit late Monday. Starbucks earned $5.4 million, or a penny per share -- down from the $158.5 million, or 21 cents per share, the company earned in the same quarter a year ago.

Excluding one-time costs, Starbucks earned 10 cents per share, short of Wall Street's expectation for 13 cents per share.

After opening down as much as 7.5%, shares recovered a bit, ending off 2.1%, to $9.99.

Total sales in the quarter rose 4% to $2.5 billion, but sales at stores open at least one year fell 3% in the quarter. Same-store sales at U.S. locations fell 8%.

Starbucks has been taking steps to cut costs by closing stores and changing its menu. The company gave broad guidance for fiscal 2009, saying that it will earn 59 cents to 78 cents per share for the full year.

Las Vegas Sands narrows loss

Trying to hold its lenders at bay, troubled casino operator Las Vegas Sands (LVS, news, msgs) said today it is selling 181.8 million shares at $5.50 each in an effort to raise $1 billion in new capital.

The company is also selling preferred stock and warrants to the family of CEO Sheldon Adelson. The family agreed to buy 5.25 million shares of preferred stock and warrants to purchase about 87.5 million shares of common stock at an exercise price of $6 each.

Las Vegas Sands shares were down 33.3% to $5.34 after being halted for a time.

Late Monday, Las Vegas Sands said its third-quarter loss narrowed to $32.2 million, or 9 cents per share, from $48.5 million, or 14 cents per share, a year ago.

On an adjusted basis, Las Vegas Sands earned 2 cents per share; analysts were looking for 11 cents per share. Revenue rose 67% to $1.11 billion, also shy of analysts' expectations.

The casino operator also said it is halting some development projects to conserve cash.

China is slowing down

One contributing factor to a decrease in oil demand is weakness in the Chinese economy.

A report today showed that China's export growth slowed in October, as the economic slowdown in the U.S. hurt demand for Chinese goods. Exports rose 19.2% in October from the same month a year ago, down from the 21.5% growth China saw in September.

The country's trade gap rose to a record $35.24 billion in October.

Many countries around the world have been relying on China to help boost the global economy, but "the global financial crisis has had a considerable impact on China's export growth," said Jing Ulrich, JPMorgan chairwoman for China equities, in a note to clients.

Asian stocks fell in overnight trading. Japan's Nikkei 225 Index was down 3%, Hong Kong's Hang Seng Index lost 2.9%, and the MSCI Asia Pacific Index fell 3.4%.

In Europe, stocks were not faring any better. London's FTSE 100 Index was down 3.6%, the German DAX 30 Index fell 5.3%, and the broader DJStoxx 600 Index was down 3.9%.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.195%	0.200%	-0.005	-55.17%	-93.79%
5-year Treasury note yield	2.503%	2.504%	-0.001	-11.27%	-27.55%
10-year Treasury note yield	3.755%	3.760%	-0.005	-5.42%	-6.94%
30-year Treasury bond yield	4.208%	4.214%	-0.006	-3.69%	-5.63%
Currencies
U.S. Dollar Index	87.690	86.390	1.300	1.56%	14.34%
British pound in dollars	$1.5385	$1.5632	-0.0248	-4.37%	-22.66%
Dollar in British pounds	£0.6500	£0.6397	0.0103	4.57%	29.30%
Euro in dollars	$1.2531	$1.2757	-0.0225	-1.70%	-14.26%
Dollar in euros	€ 0.7980	€ 0.7839	0.0141	1.73%	16.63%
Dollar in yen	97.56	97.98	-0.42	-1.07%	-12.78%
Canadian dollar in U.S. dollars	$0.829	$0.837	-$0.0081	0.22%	-16.49%
U.S. dollar in Canadian dollars	$1.207	$1.194	$0.0125	-0.19%	19.76%
Commodities
Gold	$732.80	$746.50	-$13.70	2.03%	-12.55%
Copper	$1.6480	$1.7520	-$0.10	-9.90%	-45.81%
Silver	$9.8050	$10.2200	-$0.42	0.77%	-34.28%
Corn	$3.7425	$3.8350	-$0.09	-6.79%	-17.84%
Crude oil (NYMEX) (per barrel)	$59.33	$62.41	-$3.08	-12.51%	-38.19%