Most stocks fall in session
Stocks finished mostly lower Thursday after the government reported weaker-than-expected economic data and investors heard fresh warnings about investment bank earnings and the housing market.
The Commerce Department said second-quarter gross domestic product grew at a 4% annual rate -- its fastest pace in more than a year and well above the 0.6% increase in the first quarter. But the revision of the broadest measure of economic health came in slightly lower than many economists had anticipated.
Also, the report suggested that business investment was the main driver of growth, raising concern about the strength of consumer spending.
And in a sign that Americans’ spending power might indeed weaken further, the Labor Department said initial claims for unemployment benefits rose last week to the highest level since April.
To some investors, the worse-than-anticipated economic readings weren’t bad news because they bolstered the argument for a Federal Reserve interest rate cut that could loosen up credit markets that have tightened in the wake of the sub-prime mortgage meltdown.
Also supporting rate-cut hopes, the Fed’s preferred inflation measure, which strips out food and energy costs, rose at a 1.3% annual rate in the second quarter, the smallest gain in four years.
The Dow Jones industrial average slid 50.56 points, or 0.4%, to 13,238.73 after being down about 100 points early in the session. The Standard & Poor’s 500 index fell 6.12 points, or 0.4%, to 1,457.64. But the technology-focused Nasdaq composite index rose 2.14 points, or 0.1%, to 2,565.30.
The Russell 2,000 index of smaller-company stocks dropped 4.21 points, or 0.5%, to 783.11.
Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange. Volume remained low as the Labor Day weekend approached.
Treasury yields fell as investors again fled asset-backed commercial paper and opted for the safety of government debt.
The yield on the 10-year Treasury note fell to 4.5% from 4.56% late Wednesday. Yields on three-month T-bills also fell. The amount of asset-backed commercial paper outstanding has fallen 11% in the last three weeks, and yields on such short-term debt rose Thursday to a six-year high.
The dollar was higher against most major currencies. Gold prices fell.
Near-term oil futures edged down 15 cents to $73.36 a barrel on the New York Mercantile Exchange.
Freddie Mac retreated $3.18, or 5%, to $60.07 after the mortgage finance giant said its second-quarter profit declined 45%. The company added $320 million to its provision for losses because of the deepening housing slump. Freddie Mac said the downturn could last for 18 months.
Lehman Bros. cut its earnings estimates for investment banks two days after Merrill Lynch did the same. Goldman Sachs Group fell $2.34, or 1.3%, to $171.38, Merrill Lynch slid 93 cents, or 1.3%, to $72.18 and Morgan Stanley dropped $1.05, or 1.7%, to $60.16.
“We don’t have a perfect idea of how deep or widespread the sub-prime issue will be,” said John Forelli at Independence Investment in Boston. “Investment banks are caught in the cross hairs of this financial crisis.”
Expectations of a monetary easing by the Fed grew Thursday as futures trading for the first time implied the certainty of a full-point reduction in the central bank’s benchmark interest rate by the end of the year.
Investors will look for further clues on the outlook for monetary policy today when Fed Chairman Ben S. Bernanke gives the opening speech at a Fed symposium in Jackson Hole, Wyo.
In other market highlights:
* Merrill Lynch downgraded Wal-Mart Stores to “sell.” The retailer’s shares slid 87 cents, or 2%, to $43.32.
* Some tech stocks advanced Thursday, bucking the overall market’s trend. Apple climbed $2.11 to $136.19. Cisco rose 43 cents to $31.43 and Motorola tacked on 28 cents, finishing at $16.75.
* Silicon Valley semiconductor company Sigma Designs surged $4.07, or 11%, to $42.70 after posting stronger-than-expected second-quarter results.
* Thornburg Mortgage climbed 63 cents to $11.79 after the lender raised nearly $500 million by selling 20 million shares of preferred stock.
* Genesco tumbled $5.15 to $44.95. The shoe and apparel retailer swung to a loss in its fiscal second quarter.
* Specialty retailer Coldwater Creek plummeted $4.51 to $12.88 after posting a 25% decline in profit for its fiscal second quarter, citing weak traffic and higher markdowns.
* OmniVision Technologies soared 11% to $22.14 in after-hours trading. The Sunnyvale, Calif., maker of image sensors for camera phones put out an earnings forecast that topped estimates by analysts.
* Overseas, key stock indexes rose 0.9% in Japan, 2.1% in Hong Kong, 1.1% in Shanghai, 1.3% in Britain, 1.1% in Germany and 1.3% in France.
