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Stocks on US market continue to slide

(AP)
Updated: 2007-07-28 05:18

NEW YORK - Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. It was the Dow's worst week in nearly five years.

Investors cast aside a stronger-than-expected read on the economy and maintained negative sentiment that dominated Thursday when the market shuddered amid worries over the US mortgage and corporate lending markets. Investors globally took flight from equities, shifting cash into safer investments in Treasurys.

Although the market has often rebounded after a steep drop -- and has done so in recent weeks -- investors appeared unable Friday to set aside their concerns about a weakening housing market and tightening credit.


Tim Nagy, left, interacts with other traders after the market opened in the S&P 500 futures trading pit at the Chicago Mercantile Exchange, Friday, July 27, 2007. [AP]

A Commerce Department report that the US gross domestic economy rose at a better-than-expected pace in the second quarter appeared to do little to quell investors' unease Friday. GDP increased at a 3.4 percent annual rate, indicated that the drag from the housing sector lessened. Economists had expected an increase of 3.3 percent.

Although the GDP reading might have reassured investors that the economy was more than holding up even with soaring fuel prices, it also raised the possibility that the Federal Reserve, ever vigilant about inflation, might lean toward raising interest rates. Higher rates would exacerbate the market's intensifying concerns about credit.

"I think people are really cautious right now. We're seeing the convergence of a whole host of sort of unrelated or only slightly related issues," said Randy Frederick, director of derivatives at Charles Schwab & Co. He contends market volatility will remain as investors sort through issues such as the availability of credit for corporate buyouts, soured subprime mortgages and rising energy prices.

According to preliminary calculations, the Dow fell 208.10, or 1.54 percent, to 13,265.47.

Broader stock indicators also fell. The Standard & Poor's 500 index fell 23.71, or 1.60 percent, to 1,458.95, and the Nasdaq composite index fell 37.10, or 1.43 percent, to 2,562.24.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to a heavy 2.27 billion shares compared with a record 2.78 billion shares seen Thursday.

Bonds added to a huge advance logged Thursday as investors clearly sought the relative safety of Treasurys. The yield on the benchmark 10-year Treasury note fell to 4.77 percent from 4.79 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude settled up $2.06 at $77.01 per barrel on the New York Mercantile Exchange, just a penny shy of the record close seen last summer.

Investors seemed little-moved by a stronger-than-expected consumer sentiment reading. The Reuters/University of Michigan index rose to 90.4 in July from 85.3 in June.

"I think we're going to have continued sideways movement with 100 point up-and-down days," said Frederick, referring to the Dow's back-and-forth movements. The Dow has vacillated between posting gains and losses in the past eight sessions and only last week traded above 14,000 for the first time. The blue chip index now is now roughly 650 points below the trading high of 14,021.95 it set only last week.

"The 14,000 level is going to be tough for this market to get back above," Frederick said.

Still, he said investors shouldn't overreact to the moves, in part because of the gains stocks have logged this year. Before Thursday's decline, the Dow was up 10.6 percent for the year, while the S&P had gained 7.04 percent and the Nasdaq 9.64 percent.

"You look at a 300-point Dow day and it seems like a big day but from a percentage viewpoint it's not a big move," Frederick said.

The volatility that has taken up residence on Wall Street in recent days has perhaps exacerbated concerns of investors grown accustomed to the largely calm markets of recent years. The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped Thursday and rose again Friday.

"My basic belief is that we're in an environment where we're going from extremely low volatility toward normal -- from extremely low credit spreads and perception of risk toward normal," said Bart Geer, portfolio leader of the $3.9 billion Putnam Equity Income Fund.

"You can't have all bull markets all the time. Markets go up and go down. The reason you're well paid in equities is because they do. This is all part of the process."

There was little corporate earnings news for traders to mull over, with about half the Standard & Poor's 500 index already having posted results over the past few weeks. The biggest earnings news came from Chevron Corp., which reported second-quarter profit climbed 24 percent to surpass analyst estimates as the second largest US oil company cashed in on higher gasoline prices. Chevron fell $2.26, or 2.6 percent, to $85.20.

Evidence that not all private-equity deals have screeched to a halt came as Lee Equity Partners LLC struck a deal to acquire retailer Deb Shops Inc. for about $391.1 million. Deb fell 17 cents to $26.51.

Also, medical device maker Medtronic Inc., seeking to expand its spinal products business, said it would acquire device maker Kyphon Inc. for $3.9 billion. Kyphon jumped $12.92, or 24 percent, to $66.60. The stock rose as high as $68.40, moving above its previous 52-week high of $57.10. Medtronic slipped 11 cents to $50.81.

The Russell 2000 index of smaller companies fell 13.65, or 1.72 percent, to 777.83.

Most Asian markets fell Friday in reaction to the market plunge, while European markets -- which were open during part of the big US drop Thursday -- showed more modest moves Friday. Japan's Nikkei stock average closed down 2.36 percent, while the often-volatile Shanghai composite eased lower by 0.03 percent. Britain's FTSE 100 fell 0.58 percent, Germany's DAX index dropped 0.76 percent, and France's CAC-40 fell 0.55 percent



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