Stock gains evaporate on mortgage worries
Stocks ended lower Monday, pulled down late in the session by worries that losses tied to sub-prime mortgages would deepen.
Financial stocks were especially hard hit, falling 0.6% as a group and accounting for more than a third of the decline in the Standard & Poor’s 500 index.
Bear Stearns slid to its lowest closing price in nine months on speculation that the second-biggest U.S. underwriter of mortgage bonds might have to salvage another hedge fund. Bond rating firm Moody’s had the steepest drop in the S&P; 500.
The sub-prime jitters erased a rally that had lifted the Dow Jones industrial average 129 points.
“People are concerned that there’s some great, big unknowable out there,” said Brian Barish, president of Denver- based Cambiar Investors. “There’s nothing the financial markets dislike more than uncertainty.”
The Dow fell 8.21 points, or 0.1%, to 13,352.05. The S&P; 500 closed down 4.82 points, or 0.3%, to 1,497.74, after being up 0.8%. The Nasdaq composite index slid 11.88 points, or 0.5%, to 2,577.08.
The Russell 2,000 index of smaller companies fell 7.29 points, or 0.9%, to 827.46.
Almost three stocks fell for every one that gained on the New York Stock Exchange.
Bear Stearns fell $4.65 to $139.10. The investment bank last week offered $3.2 billion in loans to bail out one of its hedge funds, which lost about 20% this year because of bad bets on securities linked to sub-prime mortgages. Bear Stearns may also have to salvage a second hedge fund, a Merrill Lynch analyst said Monday. After the close of trading, two people with knowledge of the situation said Bear Stearns might put up only $1.6 billion to rescue the fund.
Moody’s retreated for a fourth consecutive day, dropping $2.25, or 3.6%, to $61.12.
MBIA, the largest bond insurer, sank $1.98 to $61.77. Lehman Bros. Holdings, the biggest U.S. underwriter of mortgage bonds, slipped $1.57 to $75.05. Goldman Sachs Group fell $5.66, or 2.5%, to $216.74.
Monday’s decline followed a week in which the S&P; 500 and Dow average fell the most since early March.
A report Monday from the National Assn. of Realtors reinforced concern that the housing slump would worsen. Sales of previously owned homes in the U.S. fell in May to the lowest in almost four years. The supply of unsold homes jumped to the highest in almost 15 years.
A gauge of home builders declined 1.8% to its lowest level since 2004. Lennar, the largest U.S. home builder by sales, slid 98 cents to $38.75. No. 2 D.R. Horton fell 28 cents to $20.57.
Kimco Realty dropped $1.18 to $37.99. Simon Property Group lost $2.15 to $92.80.
The early jump in stocks Monday came after bond yields retreated. The yield on the benchmark 10-year Treasury note fell to 5.08% from 5.13%.
Oil prices edged up. Crude futures climbed 4 cents to $69.18 a barrel in New York. Gasoline futures also advanced, reigniting worries that average pump prices nationwide could bounce back above $3 a gallon.
The dollar fell against the yen and was unchanged versus the euro. Gold prices fell.
In other market highlights:
* Phone company stocks and utility shares advanced as falling bond yields made their relatively high dividends appear more attractive. Utility company Exelon added $1.23, or 1.8%, to $71.26.
* Tektronix gained $1.39, or 4.2%, to $34.57. The maker of test equipment for electronics manufacturers plans to sell $300 million of convertible notes and buy back $100 million of stock.
* Newly public Blackstone Group sank $2.62, or 7.5%, to $32.44 on its second day of trading. Barron’s, an investment publication, said the private equity powerhouse could face challenges from higher taxes and a shrinking field of takeovers.
* Office Depot fell $1.17, or 3.5%, to $32.32. Banc of America Securities reduced its earnings estimates for the office-supply chain and said sales growth might be hurt by a slowing economy.
* General Motors gained 81 cents, or 2.3%, to $36.27. Goldman upgraded the stock to “buy” from “neutral,” saying the United Auto Workers might offer bigger concessions.
* Tiffany climbed $1.93, or 3.9%, to $51.91 on speculation that the jewelry maker might be the target of a buyout.
* Stanley Works rose $1.37, or 2.3%, to $60.87. A Deutsche Bank Securities analyst said the tool maker would benefit from strong overseas demand.
* Nvidia dropped $1.15, or 2.6%, to $42.47. Goldman cut its rating on the maker of graphics chips to “neutral” from “buy.”
* Syntroleum rose 20 cents, or 7.2%, to $2.96 after the synthetic-fuel technology company announced a venture with meat producer Tyson Foods to make renewable fuel with animal fats.
* Ventana Medical Systems soared $26.95, or 52%, to $78.69 in extended trading after Roche Holding offered to buy the maker of cancer-diagnostic products for $75 a share, or about $3 billion, in cash.
* Overseas, key stock indexes fell 0.6% in Japan, 0.3% in Britain, 0.2% in Germany and 0.3% in France.
