Dow falls 215 ahead of jobs report

By Charley Blaine

Stocks tumbled late today on worries about Friday's payrolls report and concern over whether the U.S. auto industry can survive, even with government aid.

There were fears the Labor Department would report a decline of 400,000 or more jobs. The report will come out before the U.S. financial markets open. The Reuters consensus estimate is for a decline of 340,000 jobs with the November unemployment rate rising to 6.8% from 6.5% in October.

The jobs report is probably the most important economic release of any month. Today was a textbook example of traders selling ahead of a major event.

The Dow Jones industrials, which had been up about 12 points at 2:30 p.m., closed down 215 points, or 2.5% to 8,376. The Nasdaq Composite Index was down 47 points, or 3.1%, to 1,446. And the Standard & Poor's 500 Index was down 26 points, or 2.9%, to 845.

No sector of the stock market was immune to the late-day selling. But the weakest sector of the market by far was energy as crude oil fell below $44 for the first time since January 2005.

But prices of 10-year and 30-year Treasury securities jumped as investors sought safety. The yield on the 10-year note fell to 2.54%, the lowest level in 50 years.

Futures trading suggests the market may open slightly lower on Friday.

The market may be pressured by a report in The Wall Street Journal that Boeing (BA, news, msgs) may delay the first deliveries of its 787 Dreamliner until mid-2010 because of the recently settled machinists strike and other problems. That would mean a delay of six months.

Boeing shares, down 3.2% to $39.19 in regular trading, were off an additional 1.5% in after-hours trading.

Much of the market's attention today was focused on whether the automakers would win government assistance. General Motors (GM, news, msgs) said it needed $4 billion by the end of December and an additional $4 billion by the end of January to stay afloat.

GM was down 16.1% to $4.11, in part because of reports that the largest U.S. automaker is exploring a reorganization with workers, creditors and lenders. Ford Motor (F, news, msgs) was off 6.7% to $2.66.

GM, Ford and privately held Chrysler Group are asking for $34 billion in assistance, although most observers believe they will need more than that to become viable.

Meanwhile, there was a long litany of bad economic news that weighed on the markets, including:

• Retailers reported some of the weakest November sales in years.

• AT&T (T, news, msgs) said it would lay off 12,000 workers, 4% of its work force.

• Merck (MRK, news, msgs), one of the largest drug makers, offered 2009 guidance considerably lower than analysts had expected.

• While new jobless claims were down slightly from a week ago, there were still 4.1 million workers getting jobless benefits -- the most in 26 years.

Crude finished at 6.7% to $43.67 a barrel in New York. That was down more than 70% from highs in July and its lowest close since Jan. 5, 2005. Crude may fall below $25 next year if the recession that’s slashing fuel demand around the world spreads to China, Merrill Lynch commodity strategist Francisco Blanch wrote in a report today.

The price of gasoline averaged $1.789 a gallon, down 2 cents from Wednesday and down 56.5% since peaks in July.

Energy shares slumped in reaction. The Select Sector SPDR-Energy (XLE, news, msgs) exchange-traded fund, which tracks the energy sector of the S&P 500, was down 6.9% to $43.26. Exxon Mobil (XOM, news, msgs) was down 3.4% to $76.27. Schlumberger (SLB, news, msgs) was off 6% to $40.

Analysts believe the price could continue to fall as equity markets decline and the economic picture darkens.

The Organization of Petroleum Exporting Countries is set to meet on Dec. 17 in Algeria to discuss further production cuts. OPEC members want to see the price of crude rise above $70 per barrel.

Only five of the 30 Dow stocks were higher today, along with 87 S&P 500 stocks and 15 stocks in the Nasdaq-100 ($NDX.X) index. The index was off 38 points, or 3.3%, to 1,128.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$43.67	$46.79	-$3.12	-19.78%	-54.50%
Heating oil (per gallon)	$1.5091	$1.6083	-$0.0992	-9.83%	-43.04%
Natural gas (per million BTU)	$6.0170	$6.3470	-$0.3300	-7.57%	-19.59%
Unleaded gasoline (per gallon)	$0.9695	$1.0415	-$0.0720	-15.42%	-61.08%

Automakers would accept oversight

The chief executives of the major U.S. automakers said today that they'd be willing to work under the supervision of a federal oversight board as a condition for receiving financial aid.

GM CEO Rick Wagoner told the Senate Banking Committee today that time is running short and his company could be out of funds by the end of the year.

"We're here today because we made mistakes," he said in written testimony. "And we're here because forces beyond our control have pushed us to the brink."

General Motors and Chrysler would go into Chapter 11 after reaching agreement with workers, banks and suppliers. Government aid would be extended only for the period during which operations were disrupted. Meanwhile, the companies could be whittled down to a size at which they could begin making profits again.

Ford has said it believes it can survive without government aid but wants a $9 billion line of credit just in case.

The automakers have all come out against bankruptcy in the past, as they fear that consumers will flee their brands even with a prearranged bankruptcy that would last only a short period.

But Mark Zandi, chief economist of Economy.com, said even a prepackaged bankruptcy would take too long to craft. He also said a bankruptcy would be catastrophic for the economy.

The debate over the automakers' futures has huge political overtones.

The Federal Reserve is expected to turn away requests to lend directly to automakers, leaving the issue in the hands of Congress and the Bush administration. Democratic leaders have asked the Fed to review the automakers' turnaround plans.

The Bush administration doesn't appear to be interested in helping the automakers. White House spokeswoman Dana Perino said it is up to the automakers to show that their plans for revamping their companies will work.

President-elect Barack Obama has signaled his willingness to help the industry.

Talk of a new mortgage plan

For much of the day, stocks were propped up by talk of a new government program that would drive mortgage rates lower in a bid to jump-start the housing market.

News of the mortgage plan, which is still being developed, broke just before Wednesday's close and helped the Dow finish with a 173-point gain, its seventh gain in the last eight sessions.

Lobbyists for financial services companies were drumming up support in Washington for the mortgage plan.

"You would have the mother of all refi booms," mortgage industry consultant Howard Glaser told The Associated Press -- although it was not clear either late Wednesday or early today whether refinancings would be included in the plan.

Nonetheless, homebuilding shares were up sharply today. Pulte Homes (PHM, news, msgs) was up 4.1% to $11.60. Ryland (RYL, news, msgs) was up 4.1% to $18.42, and D.R. Horton (DHI, news, msgs) had added 8% to $7.82.

New mortgage applications more than doubled in the past week, the Mortgage Bankers Association reported, and refinance volume has more than tripled since the Federal Reserve last week announced its plan to purchase up to $500 billion of mortgage-backed securities from Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), a move that has already helped to push mortgage rates down.

Everybody but Wal-Mart had a lousy November

Retailers not named Wal-Mart Stores (WMT, news, msgs) posted some of the weakest sales figures in years for November, with many missing even downbeat expectations.

Remarkably, however, retailers' stocks were mostly higher -- because analysts and investors had already expected weak results.

Wal-Mart, the world's biggest retailer, continued its recent run of outperformance, surpassing estimates on increased store traffic and transaction size. The retail giant said November sales were up 3.4%, beating its own forecast for a 1% to 3% gain. Shares were up 1.3% to $55.11.

Limited Brands (LTD, news, msgs), owner of the Victoria's Secret chain, dropped 12%, while Costco Wholesale (COST, news, msgs) global sales declined 5%. Limited shares were down 0.5% to $8.70. Costco was up 2.6% to $52.75.

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But J.C. Penney (JCP, news, msgs), Nordstrom (JWN, news, msgs) and Gap (GPS, news, msgs) all reported that sales fell 10% or more in the month. Yet Penney shares were up 7.5% to $19.88, with Nordstrom up 10.2% to $12.01 and Gap up 2.3% to $13.17.

Abercrombie & Fitch (ANF, news, msgs) sales were down 28%, but the stock jumped 7.8% to $17.87. American Eagle Outfitters (AEO, news, msgs) sales dropped 11%. Fourth-quarter profit will be between 30 cents to 36 cents a share, the company said. Bloomberg said analysts had been expecting 39 cents a share in earnings. The stock fell 4.2% to $8.99.

Central banks cut interest rates

There was some good news outside the United States. The Bank of England has cut its key interest rates by a full percentage point today, from 3% to 2%. The rate is the lowest for the U.K. since 1939.

Then the European Central Bank made a record rate cut today, lowering the key interest rate to 2.5% from 3.25%. The cut of 75 basis points is the largest in the history of the central bank.

"The interest-rate cuts are better than investors expected, but much of the change has already been priced into stocks," said Chloe Magnier, head of strategy with Saxo Banque in Paris.

The Dow Jones Stoxx 600 Index dropped 0.5% to 197.40, the German Xetra Dax Index($DE:DAX) was down slightly at 4,564. London's FTSE 100 Index ($GB:UKX) lost 0.2%.

Asian stocks declined today in light trading as investors awaited interest-rate decisions in Europe.

The Nikkei 225 Index ($JP:N225) closed down 1%, the MSCI Asia Pacific Index dropped 1.2%, and Hong Kong's Hang Seng Index ($HSIX) fell 0.5%.

Lower jobless claims, bigger problems

The good news -- such as it was -- was that weekly initial jobless claims dropped 21,000 to 509,000 for the week ending Nov. 29, the Labor Department said today.

The decline surprised economists, who had forecast a considerable rise in the number of unemployed, but the drop may have been due to shorter work periods through the Thanksgiving holidays.

But the bad news is stark: Jobless benefits claims are still at a greater number than at any time in the past 26 years.

The unemployment rate among those eligible for jobless benefits is 3.1%, the highest percentage since 1992, the Labor Department said.

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Today's report on factory orders showed a drop of 5% in October, following a 4% decline in September.

DuPont cuts jobs and reduces its guidance

DuPont (DD, news, msgs) said it would cut 2,500 jobs and cut 4,000 contractors in the coming year.

The chemicals giant now expects a fourth-quarter loss of 20 cents to 30 cents per share. Analysts had predicted a drop of 23 cents per share.

Shares were up 0.3% to $23.69.

Toyota closes a factory

Foreign automakers are seeing tough times as well. Toyota Motor (TM, news, msgs) announced today that it will close its plant in Hokkaido, Japan.

The factory, which makes engine transmissions, will suspend all production for the first time in 15 years.

On Wednesday, Toyota said it will suspend production of Lexus luxury models at its Tahara plant, and output of all vehicles at its Miyata plant for two days in December. Both plants are in Japan.

Toyota's car sales have dropped 30% in the U.S. in the past year. Shares were down 5.6% to $58.40 in New York.

Merck lowers 2009 guidance

Merck (MRK, news, msgs) said net income in 2009 may fall short of guidance, as sales of its top-selling cholesterol pills have declined. The company is cutting jobs, and streamlining operations.

Profit at Merck will be $3.15 to $3.30 a share next year Merck said today in a statement. The analyst consensus for profit at Merck was $3.52 per share.

Shares were off 5.5% to $25.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.005%	0.015%	-0.010	-75.00%	-99.84%
5-year Treasury note yield	1.534%	1.632%	-0.098	-21.09%	-55.60%
10-year Treasury note yield	2.570%	2.676%	-0.106	-13.09%	-36.31%
30-year Treasury bond yield	3.084%	3.184%	-0.100	-11.56%	-30.84%
Currencies
U.S. Dollar Index	86.545	87.165	-0.620	-0.18%	12.84%
British pound in dollars	$1.4693	$1.4786	-0.0093	-4.50%	-26.14%
Dollar in British pounds	£0.6806	£0.6763	0.0043	4.71%	35.39%
Euro in dollars	$1.2781	$1.2719	0.0062	0.69%	-12.55%
Dollar in euros	€ 0.7824	€ 0.7862	-0.0038	-0.69%	14.35%
Dollar in yen	92.18	93.29	-1.11	-3.57%	-17.59%
Canadian dollar in U.S. dollars	$0.783	$0.799	-$0.0158	-3.12%	-21.17%
U.S. dollar in Canadian dollars	$1.278	$1.252	$0.0262	3.22%	26.86%
Commodities
Gold	$765.50	$770.50	-$5.00	-6.53%	-8.65%
Copper	$1.4695	$1.5545	-$0.09	-10.91%	-51.68%
Silver	$9.5200	$9.5900	-$0.07	-6.94%	-36.19%
Corn	$3.1825	$3.3200	-$0.14	-8.94%	-30.13%
Crude oil (NYMEX) (per barrel)	$43.67	$46.79	-$3.12	-19.78%	-54.50%