Stocks turn lower as traders look for signs
NEW YORK » Wall Street tumbled yesterday, led by financial services stocks, on concerns that the U.S. economy's expansion will erode amid troubles in the mortgage industry.
Early gains proved short-lived after a pair of Federal Reserve officials yesterday expressed worry about the subprime mortgage crisis and its impact on banks and brokerages.
Fed Bank of Boston President Eric Rosengren said in a speech that he was concerned that home foreclosures might worsen as overall economic growth slows. Meanwhile, San Francisco Fed President Janet Yellen labeled growth in the final three months of the year as being "only very meager" and warned that housing problems could "spill over" into consumer spending.
Investors have been looking for a government-sponsored rescue of the mortgage industry. U.S. Treasury Secretary Henry Paulson said in a speech that the White House is moving closer to an agreement to help thousands of homeowners avoid mortgage defaults by temporarily holding their interest rates steady.
Lincoln Anderson, chief investment officer and chief economist at LPL Financial Services in Boston, said investors are uncertain about where stocks will head after last week's gains and are awaiting economic readings such as the employment report due Friday.
"I think what we've got is a market that's trying to sort out whether we're seeing a big shift in the economic and investment fundamentals here or whether we're just going to continue to slog along," he said.
The Dow Jones industrial average fell 57.15, or 0.43 percent, to 13,314.57.
Broader stock indicators were also lower. The Standard & Poor's 500 index dropped 8.72, or 0.59 percent, to 1,472.42, and the Nasdaq composite index fell 28.83, or 0.90 percent, to 2,637.13. The Russell 2000 index of smaller companies fell 7.88, or 1.03 percent, to 759.89.
Declining issues outpaced advancers by a 4 to 3 basis on the New York Stock Exchange, where volume came to 947.9 million shares.
Investors also considered a report from the Institute for Supply Management that showed the pace of growth in the manufacturing sector slowed in November, though not as quickly as had been expected. The report was better than analysts' expectations.
Bond prices rose yesterday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.87 percent from 3.94 percent late Friday.
Light, sweet crude fell 99 cents to $89.70 per barrel on the New York Mercantile Exchange amid speculation that OPEC may boost output at its meeting this week even after a sharp drop in prices last week.
In corporate news, Vivendi SA said it plans to acquire a controlling stake in Activision Inc. to combine it with Vivendi Games and create a rival to Electronic Arts Inc. Activision and Vivendi valued the combined company at $18.9 billion. Activision jumped $2.82, or 12.7 percent, to $24.97.
MetLife Inc. predicted its operating profit will rise due to strong results from its business as well as "unusually strong" investment results. MetLife fell 81 cents to $64.78.