U.S. stocks retreated, erasing half of yesterday's rally, after plunging commodity prices sent oil and mining companies lower and an insurer tried to cancel $3.1 billion in protection on Merrill Lynch & Co. mortgage bonds.
Chevron Corp. slid the most in five years as lower fuel demand increased concern that the Federal Reserve has failed to prevent a recession. Merrill posted its steepest drop since 2001, killing a rally in financials spurred by better-than- forecast earnings at Morgan Stanley and approval for Fannie Mae and Freddie Mac to buy more mortgages.
The Standard & Poor's 500 Index, which surged the most in five years yesterday after the Fed cut its benchmark interest rate by 75 basis points, lost 32.32 points, or 2.4 percent, to 1,298.42, its biggest tumble this month. The Dow Jones Industrial Average dropped 293, or 2.4 percent, to 12,099.66. The Nasdaq Composite Index decreased 58.3, or 2.6 percent, to 2,209.96. Nine stocks declined for every two that rose on the New York Stock Exchange.
``This whole market is driven by fear right now,'' said James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2 billion in Boston. ``Investors are thinking more and more this will be a long and drawn out recession, and that pulls down commodity prices and energy prices.''
Energy shares in the S&P 500 fell the most since August 2002, losing 5.4 percent as a group, after crude dropped almost $5 a barrel. Financial shares, which surged 8.5 percent yesterday, followed up their biggest gain since 2000 with a decline of 2 percent.
Miners, Drillers Slump
Chevron, the second-biggest U.S. oil company, dropped $4.23, or 4.9 percent, to $81.89 and ConocoPhillips, the No. 3 energy company, slid $4.66, or 6 percent, to $73.61. Exxon Mobil Corp., the largest, lost $4.04 to $84.43. Crude fell the most since August, slipping 4.5 percent to $104.48 a barrel in New York, after the Energy Department said oil supplies rose by 133,000 barrels to 311.8 million, the ninth gain in 10 weeks, as imports fell.
Raw-materials producers fell 6.3 percent. Barrick Gold Corp., the world's largest gold producer, declined $4.33 to $45.25 and Newmont Mining Corp., the second-biggest, slid $2.17 to $48.72. Gold plunged $59 an ounce, the most ever. Futures for April delivery fell 5.9 percent to $945.30 an ounce after the Fed's rate cut was less than investors expected, reducing the appeal of the precious metal as a hedge against inflation.
Merrill, Lehman Decline
Merrill Lynch slumped $5.18, or 11 percent, to $41.45. The brokerage sued XL Capital Assurance Inc. over default protection on $3 billion of collateralized debt obligations that the bond- insurance unit of Security Capital Assurance Ltd. is seeking to void.
Lehman Brothers Holdings Inc., which surged 46 percent yesterday after posting earnings that topped estimates, tumbled $4.26 to $42.23 today. The fourth-largest U.S. securities firm may have more writedowns in future quarters until ``troubled assets'' of $87 billion are removed from the firm's balance sheet, analysts at Sanford C. Bernstein & Co. said.
``There are still major uncertainties and risks,'' Jean- Marie Eveillard, who runs the $21.3 billion First Eagle Global Fund in New York, said during an interview with Bloomberg Television. ``The Federal Reserve is pedaling as fast as possible to keep the bicycle out of the ditch.''
Monsanto Co., the world's biggest seed producer, fell the most in five years, losing $13.21, or 12 percent, to $98.87. Wheat, corn and soybeans dropped by the maximum permitted by the Chicago Board of Trade as rain improved crop prospects in Australia and farmers worldwide prepared to sow more grain to take advantage of last month's record prices. Monsanto also lost a bid to have France's highest court overturn a ban on genetically modified corn.
CIT, Discover
CIT Group Inc. lost $1.65, or 12 percent, to $11.64. The largest independent commercial finance company in the U.S. had its rating cut one level by Moody's Investors Service, which cited its reduced funding flexibility amid a tightening credit market. The rating was cut to A3 from A2, affecting about $53 billion of debt securities, Moody's said.
Discover Financial Services dropped the most since its spinoff by Morgan Stanley in June, falling $2.20, or 13 percent, to $15.20. The credit-card company said profit fell 65 percent on charges tied to selling a U.K. unit.
Financial shares had rallied as much as 2.5 percent earlier.
Freddie, Fannie
Freddie Mac climbed $3.88 to $29.90. Fannie Mae added $2.49 to $30.71. Regulators for the two companies cut their surplus capital requirement to 20 percent from 30 percent to help expand their combined $1.5 trillion in mortgage investments and revive the home-loan market. The change is expected to provide $200 billion in funds to the mortgage-backed securities market, the Office of Federal Housing Enterprise Oversight said in a news release. The government-chartered companies also agreed to raise more capital.
Morgan Stanley gained 59 cents to $43.45. The second- biggest U.S. securities firm said it earned $1.45 a share in its fiscal first quarter, topping analysts' estimates of $1.01.
Visa Inc. rallied $12.50, or 28 percent, to $56.50 in its first day of trading in New York. The largest credit-card company set a record for U.S. initial public offerings yesterday by raising $17.9 billion. Underwriters sold 406 million shares of Visa for $44 each, $2 more than the highest price predicted by the company in its prospectus.
Clear Channel Communications Inc. dropped $3.20 to $32.60. The largest U.S. radio company's buyout by Thomas H. Lee Partners LP and Bain Capital LLC is not likely to close this week, CNBC reported, citing people with knowledge of the situation. The company doesn't plan to comment on the CNBC report, spokeswoman Michele Clarke said in an e-mail.
Adobe
Adobe Systems Inc. surged $2.87 to $34.75. The biggest maker of design programs maintained its projection for revenue growth of about 13 percent this year, easing concerns that advertising and marketing companies are curbing software spending.
MGIC Investment Corp. fell 90 cents to $13.10. The largest U.S. mortgage insurer plans to raise at least $675 million through stock and convertible debt sales to increase capital at its main insurance unit after a record fourth-quarter loss. Additional shares give each stockholder a smaller slice of the company's earnings.
General Mills Inc. gained 72 cents to $58.92. The second- largest U.S. cereal maker posted third-quarter profit that exceeded some analysts' estimates after the company raised prices and reduced production costs.
The Russell 2000 Index, whose median market value is 95 percent less than the S&P 500's, fell 2.6 percent to 664.13. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 2.4 percent to 13,037.3. Based on its retreat, the value of stocks decreased by $397 billion.
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