Dow closes below 13,000 on fears of credit fallout

The Dow Jones industrial average Monday closed below 13,000 for the first time since August as fears of further fallout from the continuing credit crisis sent the stock market to its fourth straight daily decline.

Energy and metal companies helped pull the market lower after commodity prices dropped on worries of slowing economic growth. And technology shares extended their steep retreat of last week.

Stocks traded higher for most of the day as investors snapped up shares of banks and brokerages. An index of financial companies climbed 3.2% before losing almost all of that gain in the last 40 minutes of trading.

Analysts said investors had few reasons to sustain a rally as the sub-prime contagion remained in focus. Late Friday, E-Trade Financial said that the value of its mortgage-backed securities had fallen significantly, requiring bigger-than-expected write-downs in the fourth quarter. And an analyst warned Monday that the online brokerage could be forced to file for bankruptcy protection.

Meanwhile, Countrywide Financial said in a U.S. regulatory filing late Friday that its operations could be severely limited if its credit rating dropped into junk status, as debt rating firms have warned could happen.

E-Trade plunged $5.04, or 59%, to $3.55, while Countrywide fell 64 cents, or 4.6%, to $13.19.

“The problem is just the mood of the market,” said Peter Cardillo, chief market economist at Avalon Partners. “There is a tense feeling that there will be still more problems with the sub-prime situation and a fear that things are going to get worse rather than better.”

Sentiment in the stock market “is so bad that we did not even get much help from a drop in commodities prices,” Cardillo said. “Nothing will change until we get a positive catalyst and I don’t see one.”

The Dow, which was up more than 100 points earlier in the day, closed down 55.19 points, or 0.4%, at 12,987.55, after falling 4.1% last week.

The last time the Dow closed below 13,000 was Aug. 16, when it ended at 12,845.78. The average has fallen 8.3% from its record high close set Oct. 9.

The Standard & Poor’s 500 index Monday fell 14.52 points, or 1%, to 1,439.18, while the Nasdaq composite index dropped 43.81 points, or 1.7%, to 2,584.13.

The Russell 2,000 index of smaller companies fell 5.29 points, or 0.7%, to 767.09.

Declining issues outnumbered advancing shares by about 2 to 1 on the New York Stock Exchange.

“Economic growth here in the U.S. is slowing pretty dramatically and that is starting to affect some of these real asset prices,” said David Chalupnik, a Minneapolis-based senior managing director at First American Funds. Concern about the economy, he added, “has been a big headwind for the market.”

The dollar was mixed Monday against other major currencies. Gold prices dipped below $800 an ounce before recovering somewhat to close down $26.70 at $805.80.

The Treasury bond market was closed for Veterans Day.

Oil futures fell $1.70 to $94.62 a barrel in New York on reports that the Organization of the Petroleum Exporting Countries would discuss at a coming meeting a proposal to boost output.

Energy and raw-material shares have led the U.S. stock market’s advance this year as commodity prices have surged on the global economy’s strength. But concern that the U.S. housing downturn and tighter credit markets will curb demand for fuel and metals has dragged down the S&P; 500 Energy index 9.3% from its all-time high last month and pulled down the S&P; 500 Materials index 8.5% from a record.

Energy shares dropped 3.8% on Monday, and raw-material producers retreated 3.7%, the two biggest declines among 10 industries in the S&P; 500.

Exxon Mobil dropped $2.31, or 2.7%, to $84.54. its lowest price since August. Freeport-McMoRan Copper & Gold, the world’s second-largest copper producer, sank $10.36, or 9.5%, to $99.25.

Selling was especially strong in tech stocks. Apple fell $11.61, or 7%, to $153.76 after analysts described the iPhone’s European launch as disappointing. Google slumped $31.90, or 4.8%, to $632.07, bringing its slide over the last four sessions to 15%.

Some networking-software makers declined after Oracle said it would offer a free product that lets customers run a variety of programs on a single-server computer.

VMware, the largest maker of so-called virtualization software, dropped $7.38, or 8.4%, to $80.36. Citrix Systems, a maker of computer-networking software, tumbled $2.32, or 5.6%, to $39.47. Oracle gained 8 cents to $19.44.

Takeover news might have helped contain the market’s slide. IBM said it would buy software maker Cognos for $58 a share, or $5 billion. Cognos surged $4.17, or 7.9%, to $57.15. IBM rose $1.20, or 1.2%, to $101.45.

In other market highlights:

Citigroup rebounded after losing 12% last week. The stock jumped 5.9% before pulling back to close up 47 cents, or 1.4%, at $33.57.

Tyson Foods fell 42 cents, or 2.9%, to $14.33 after the meat company forecast earnings for this year that were below what analysts were expecting.

Boeing fell $1.35, or 1.4%, to $92.86 as rival jet maker Airbus, helped by new business from the Dubai International Airshow, said it expected a record year for deliveries and orders.

Wal-Mart Stores rallied 42 cents, or 1%, to $43.32 after Goldman Sachs said the world’s biggest retailer might take business from rivals if a slower economy drove customers to lower-priced goods. Family Dollar Stores jumped 98 cents, or 4.4%, to $23.51.

The S&P; 500 Retailing index rose 1%, its first gain in four days. The gauge last week traded for 14.7 times the earnings of the companies in the index, the lowest such multiple since Bloomberg began tracking it in 1995.

Macy’s climbed 26 cents to $28.75, snapping a nine-day retreat that had dragged the shares down 15%.

Johnson & Johnson, Abbott Laboratories and Medtronic shares rose after the New York Times reported drug-coated heart stents might be safer than alternatives for some patients.

Johnson & Johnson gained $1.15, or 1.8%, to $66.31. Abbott added 55 cents, or 1%, to $54.67. Medtronic increased 32 cents to $46.36.

Microsoft fell for a sixth straight day. Merrill Lynch & Co. analysts lowered their recommendation on the software giant to “neutral” from “buy,” saying the software industry’s sales growth could slow amid uncertainty about the economy and weak demand from financial companies. Microsoft fell 35 cents, or 1%, to $33.38.

In Asia, key stock indexes tumbled 2.5% in Japan and 3.9% in Hong Kong in their first response to the U.S. market’s sharp decline Friday. In Europe, shares rose 0.5% in Britain and 0.2% in France but fell 0.1% in Germany.