Wall Street falls amid unease over bad debt
NEW YORK » Stocks pulled back sharply yesterday as news that major U.S. 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 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 U.S. bank, reported that third-quarter results fell 57 percent.
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 U.S. 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 than are in more trouble than we thought they were," said Aaron Gurwitz, co-head of portfolio strategy at Lehman Brothers Investment Management, referring to concerns about bad debt. He also noted that today's session wasn't unusual given the back-and-forth moves in the major indexes in recent sessions.
The Dow fell 108.28, or 0.77 percent, to 13,984.80.
Broader stock indicators also declined. The S&P 500 index fell 13.09, or 0.84 percent, to 1,548.71, and the Nasdaq composite index fell 25.63, or 0.91 percent, to 2,780.05.
The Russell 2000 index of smaller companies fell 11.81, or 1.40 percent, to 829.36.
Declining issues outnumbered advancers by about 8 to 3 on the New York Stock Exchange, where volume came to 1.29 billion shares compared with 1.06 billion shares traded Friday.
Bonds fell following a better-than-expected economic regional economic reading in New York. The yield on the benchmark 10-year Treasury note rose to 4.68 percent from 4.65 percent late Friday. The dollar was mixed against most other major currencies, while gold prices rose.
Light, sweet crude rose to record levels, crossing $85 per barrel for the first time and rising as high as $86.22 in trading. Oil settled up $2.44 at $86.13 per barrel on the New York Mercantile Exchange as after the Organization of Petroleum Exporting Countries said crude production by countries that aren't OPEC members is probably falling despite rising demand.
The concerns over soured loans drew comments from Treasury Secretary Henry Paulson, who said in a speech yesterday that the troubles with SIVs might require regulators to step in to stave off future problems, according to Dow Jones Newswires.
Citigroup fell $1.63, or 3.4 percent, 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.