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GM outlook, higher oil hammer stocks

Investors sent stocks falling sharply for a second straight day Thursday, as crude oil prices surged near $55 per barrel and General Motors Corp.’s earnings disappointed the market. The sharp sell-off dragged the blue-chip Dow Jones industrial average well below the psychologically-key 10,000 level.
/ Source: The Associated Press

Investors sent stocks falling sharply for a second straight day Thursday, as crude oil prices surged near $55 per barrel and General Motors Corp.’s earnings disappointed the market.

The Dow Jones industrial average dropped to its lowest level since mid-August and closed below the psychologically-key 10,000 level for the first time since Sept. 27.

Crude oil futures continued a record-setting trend Thursday, with prices reaching $54.90 per barrel in intra-day trading. While crude inventories rose more than expected, according to a government report, reserves of distillates such as heating oil dropped substantially. A barrel of light crude for November delivery closed at a record $54.76, up $1.12, on the New York Mercantile Exchange.

“The biggest thing that would help the markets right now would be a sustained drop in crude oil, but I’m not holding my breath for that,” said Lincoln Anderson, chief investment officer for LPL Financial Services in Boston. “It’s drawing attention away from third-quarter numbers that, despite GM, are really pretty good.”

With GM missing its earnings forecasts by a wide margin and lowering its full-year outlook, Wall Street feared that the slower economy and soaring energy prices could lead other major companies into similar problems.

At Thursday’s close the Dow Jones industrial average was down 107.88 points, or 1.1 percent, at 9,894.45, sinking to its lowest level since Aug. 13 and adding to a 74.85-point slump seen in the previous session.

The broader Standard & Poor’s 500-stock index finished Thursday down 10.36 points, or 0.9 percent, at 1,103.29, while the technology-rich Nasdaq composite index dropped 17.51 points, or 0.9 percent, to 1,903.02.

GM’s earnings weighed heavily on automakers and auto parts manufacturer stocks, while an investigation by New York’s attorney general into improprieties in a number of insurance companies pressured the financial sector. Only the energy sector managed any meaningful gains, thanks to the continued rise in oil prices.

A raft of disappointing economic figures also weighed on the market. According to the Commerce Department, the nation’s trade deficit climbed to $54 billion in August, the second-highest level in history and 6.9 percent higher than July. Furthermore, a weak dollar overseas contributed to a 2.9 percent increase in the price of imported goods in September.

The Labor Department reported a larger-than-expected increase in first-time jobless claims last week, with claims rising 15,000 to 352,000. The four-week moving average of claims, seen as a more reliable indicator of unemployment, rose by 4,000 to a seven-month high of 352,000.

With the soft economy and rising oil prices, GM’s results were particularly worrisome for investors. The automaker reported earnings of 78 cents per share, far less than the 96 cents per share Wall Street expected, and lowered its full-year outlook by nearly $1 per share. GM, a Dow component, slid $2.46 to $38.84.

“Most investors have realized for a while that the U.S. auto industry has been losing market share to the Japanese,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC. “But the scope of GM’s earning miss today, and that they’re lowering guidance for the fourth quarter and the year, calls into question just how weak earnings may be over the next several quarters for the auto industry.”

Financial stocks fared much better, with Dow stock Citigroup surpassing Wall Street estimates by 3 cents per share and Bank of America Corp. beating forecasts by a penny per share. Nonetheless, Citigroup fell 41 cents to $43.70, while Bank of America fell 80 cents to $44.20.

A mix of news from technology companies pressured tech shares. Apple Computer Inc. surged $5.23, or 13.2 percent, to $44.98 after it doubled its profits from a year ago due to strong sales of its iPod music players, beating Wall Street forecasts by 8 cents per share after one-time charges.

However, computer memory producer SanDisk Corp. missed analysts’ estimates by 5 cents per share despite strong sales. SanDisk plummeted $7.68, or 27.2 percent, to $20.52.

Morgan Stanley cut its rating on Hewlett-Packard Co. to “equal weight” from “overweight,” citing the Dow component’s loss of market share and increased competition. H-P was down 52 cents at $18.38.

Overseas, Japan’s Nikkei stock average fell 1.44 percent. In Europe, Britain’s FTSE 100 closed down 0.12 percent, France’s CAC-40 lost 0.89 percent for the session and Germany’s DAX index dropped 0.80 percent.