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Stocks fall sharply after latest economic data

The stock market finished with a sharp loss Thursday after bleak readings on the economy heightened investors’ fears of a recession. The Dow Jones industrial average fell 142 points.
/ Source: The Associated Press

The stock market finished with a sharp loss Thursday after bleak readings on the economy heightened investors’ fears of recession. The Dow Jones industrial average fell more than 140 points.

Wall Street was disappointed when the Philadelphia Federal Reserve reported that regional manufacturing fell more than predicted. Another piece of bad news was the Conference Board’s January index of leading economic indicators, which posted its fourth straight drop.

Investors have already been pricing in another interest rate cut — perhaps up to half a percentage point — after minutes from the Federal Reserve’s last policy-setting meeting indicated central bankers will remain vigilant about the economy. The Fed, which meets again March 18, has forecast slower growth and continued risks to the economy from housing and credit markets.

Though investors been assured by the central bank that it will lower rates again if necessary, that expectation has not been enough to galvanize their confidence in the stock market and the economy. Wall Street remains concerned that the economy could be so weak that rate cuts, which take months to work their way through the economy, won’t prevent further deterioration.

“The Fed cutting rates is a little bit like a fire engine pulling up to your house,” said Brian Gendreau, investment strategist for ING Investment Management. “You’re happy help has arrived, but still, your house is burning down.”

The Dow fell 142.96, or 1.15 percent, to 12,284.30.

The biggest loser among the 30 Dow components was General Motors Corp. after lender GMAC LLC, which is part-owned by GM, said it will slash hundreds of jobs at its auto finance business. GM fell $1.24, or 4.9 percent, to $24.30.

Broader indexes also declined. The Standard & Poor’s 500 index shed 17.50, or 1.29 percent, to 1,342.53, while the Nasdaq composite index fell 27.32, or 1.17 percent, to 2,299.78.

“What you’re seeing is a tug of war out there,” said Arthur Hogan, chief market analyst at Jefferies & Co. “There are those that believe we’re in a recession and earnings will move lower, and others that feel we’re working on a bottom. That can change the direction of stocks minute-by-minute.”

Bond prices moved sharply higher on expectations of a rate reduction. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.89 percent late Wednesday.

Light, sweet crude for April delivery dropped $1.47 to settle at $98.23 a barrel on the New York Mercantile Exchange, after the government reported that U.S. crude oil inventories increased by more than expected last week. Crude had reached a new record above $101 in overnight trading.

Gold jumped to a record high above $950 an ounce on Thursday, while the dollar dipped slightly against most major currencies.

In corporate news, there was further evidence that the global credit crisis is far from over. French bank Societe Generale SA said a trading scandal and write-downs linked to the crisis led to a loss in the fourth quarter. The bank lost $4.91 billion, compared with a $1.73 billion profit during the same period of 2006.

MBIA Inc. fell 28 cents, or 2.3 percent, to $11.90 after activist shareholder William Ackman’s late Wednesday opposed a plan that struggling bond insurers be split into two companies. The company said Ackman, a hedge fund manager, stood to benefit from negative bets on the stock.

Many companies outside the financial sector are showing resilience. BlackBerry maker Research In Motion Ltd. raised its outlook for fourth-quarter subscriber additions by about 15 percent to 20 percent, citing the popularity of smartphones in the holiday selling season. The stock surged $8.78, or 9 percent, to $106.69.

But there is a great deal of uncertainty about U.S. consumers — the main drivers of the economy.

Safeway Inc. posted a slight decline in fourth-quarter profit that was in line with analyst expectations. But worries about a recent sales slowdown accelerating as shoppers battle a weakening economy and high food prices drove the grocery store operator’s shares down $2.28, or 7.1 percent, to $29.66.

The Labor Department reported that the number of U.S. workers filing new claims for unemployment benefits fell last week. However, claims lasting more than one week rose, suggesting idled workers are staying unemployed longer.

The Russell 2000 index of smaller companies fell 13.74, or 1.94 percent, to 696.28.

Declining issues led advancers by nearly 3 to 1 on the New York Stock Exchange, where volume came to a relatively low 1.42 billion shares.

Overseas, Japan’s Nikkei stock average closed up 2.84 percent. Britain’s FTSE 100 added 0.65 percent, Germany’s DAX index rose 0.07 percent, and France’s CAC-40 rose 0.96 percent.