US stocks close weak
Tuesday, October 16, 2007 (New York):
Stocks pulled back sharply Monday as news that major US banks will set up a fund to help bail out the credit markets stirred concerns about bad debt and as oil prices surged to $86 per barrel for the first time. The Dow Jones industrial average lost more than 100 points.
The stock market’s pullback comes not only amid concerns about debt and rising energy costs but as investors await third-quarter reports due this week from more than 80 components of the Standard & Poor’s 500 index.
The concerns about banking came after Citigroup Inc., the biggest US bank, reported that third-quarter results fell 57 per cent. The company said it lost more than $3 billion in mortgage-backed security losses, leveraged debt write-downs and fixed-income trading losses.
The bank along with JPMorgan Chase & Co. and Bank of America Corp. announced the creation of a fund used to help revive the asset-backed commercial paper market.
The fund will buy assets from structured investment vehicles, also known as SIVs, which buy corporate bonds and subprime mortgage debt. The bailout was orchestrated by the Treasury Department to avoid a fire sale in the market.
“It’s a reminder that this problem never was entirely put to bed. There may be financial institutions out there that are in more trouble than we thought they were,” said Aaron Gurwitz, co-head of portfolio strategy at Lehman Brothers Investment Management.
Bond prices
The Dow fell 108.28, or 0.77 per cent, to 13,984.80. Broader stock indicators also declined. The S&P 500 index fell 13.09, or 0.84 per cent, to 1,548.71, and the Nasdaq composite index fell 25.63, or 0.91 per cent, to 2,780.05.
Bond prices fell following a better-than-expected regional economic reading in New York, but the losses were erased later. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.68 per cent from 4.70 per cent late Friday. The dollar fell against most other major currencies, while gold prices rose.
Citigroup fell $1.63, or 3.4 per cent, to $46.24 after the bank raised its loan-loss provisions by $2.24 billion a higher amount than it estimated a week ago amid expectations of further deterioration in consumer credit. The bank also said it would delay repurchases of its shares.
Medtronic Inc. fell $6.33, or 11 per cent, to $50 after the company said it is halting distribution of wires that connect some of its defibrillators to patients’ hearts after learning they may have contributed to five deaths.
Biogen Idec Inc. jumped $13.08, or 19 per cent, to $82.51 after the company said it may sell itself and that it has drawn interest from potential buyers.
Declining issues outnumbered advancers by about 8-to-3 on the New York Stock Exchange, where consolidated volume came to 3.03 billion shares compared with 2.71 billion shares traded Friday.
