Subprime worries sabotage stock rally
NEW YORK » Wall Street resumed its downward skid yesterday, falling sharply as renewed concerns about soured home loans blew away what had looked like a solid recovery rally. The Dow Jones industrials lost nearly 150 points, while investors seeking safety moved into bonds.
Early in the session, stocks had soared following strong earnings from General Motors Corp. and Sun Microsystems Inc. and amid somewhat mixed economic data. But the market pulled back after American Home Mortgage Investment Corp. said yesterday afternoon it hasn't been able to tap into its credit lines and has hired advisers to consider its options, including the sale of its assets.
"Anything that argues for higher (interest) rates and worsening credit conditions will be something that takes the air out of the market," said Denis Amato, chief investment officer at Ancora Advisors. He said the market's short-lived advance was in part made possible by a temporary easing of credit fears.
The Dow fell 146.32, or 1.10 percent, to 13,211.99 after being up as much as 140 points during the session. The move lower undid a nearly 93 point gain the blue chips saw Monday in a partial rebound from the 585 points they lost over the course of Thursday and Friday.
Broader stock indicators fell. The Standard & Poor's 500 index fell 18.64, or 1.26 percent, to 1,455.27, and the Nasdaq composite index fell 37.01, or 1.43 percent, to 2,546.27.
Bond prices, which move opposite yields, rose as investors quickly fled stocks. The 10-year Treasury note's yield fell to 4.74 percent from 4.81 percent late Monday.
Oil prices closed above $78 a barrel for the first time yesterday on the New York Mercantile Exchange, advancing $1.38 to $78.21.
The was mixed against other major currencies. Gold prices closed higher on the New York Mercantile Exchange.
Declining issues outnumbered advancers on the New York Stock Exchange, where volume came to 2.21 billion shares compared with 2.03 billion traded Monday.
The Russell 2000 index of smaller companies fell 8.16, or 1.04 percent, to 776.07.
The U.S. Commerce Department's year-over-year core personal consumption expenditures -- a closely watched inflation measure -- rose 1.9 percent in June, within the Federal Reserve's comfort zone. The report also showed that personal spending last month inched up 0.1 percent, its slowest pace in nine months.
In corporate news, American Home fell $9.42, or 90 percent, to $1.05 following disclosure of its difficulties.
Moody's Investors Service tightened its standards yesterday for so-called Alt-A loans, which are above supbrime but below prime loans in terms of credit quality. The move could stir concerns that credit problems are spreading beyond subprime loans to a higher quality of borrower.
GM fell 21 cents to $32.40. The stock had been up much of the session after releasing its better-than-expected quarterly earnings, but followed the rest of the market lower.
The company said it benefited from higher sales in markets worldwide.
Sun Microsystems jumped 21 cents, or 4.3 percent, to $5.10.