Stocks Fall Further, Mirroring Europe, Asia

By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, March 6, 2007

Stocks faltered again yesterday during a global equities sell-off and as concerns mounted about the health of a high-risk part of the home mortgage industry.

Each of the major indicators added to their losses of last week, the worst in several years. The Dow Jones industrial average shed 63.69, or 0.53 percent, to close at 12,050.41. The tech-heavy Nasdaq dropped 27.32, or 1.15 percent, to 2340.68. The broader S&P 500-stock index fell 13.05, or 0.94 percent, to 1374.12.

"I don't think it's the bottom. You've got earnings growth decelerating and no Fed easing in sight," said Jeff Schappe, chief investment officer at BB&T Asset Management, referring to the Federal Reserve's position on interest rates. "So the market is having trouble hanging its hat on something good."

Overnight selling in Asia and Europe appeared to set the tone for U.S. exchanges. The Dow dropped more than 70 points in early trading. The average bounced in and out of negative territory throughout the day as investors took their profits, shopped for bargains or bought safer equities and bonds.

Japan's Nikkei index lost 3.3 percent of its value yesterday, falling 575 points. It recovered slightly in early trading today. Declines were led by exporters, whose overseas profits are being eaten by the rallying yen. It was the fifth consecutive day of losses for the Nikkei since Chinese stocks fell almost 9 percent Feb. 27. The Shanghai index dropped 1.6 percent yesterday. Hong Kong's Hang Seng index posted a 4 percent loss.

The picture was similar in Europe, where worries about weakness in the U.S. mortgage business and the strong Japanese yen lingered. Britain's FTSE 100 lost 0.9 percent, and Germany's DAX index fell 1 percent.

The yen rose 1 percent to hit a three-month high against the dollar. It was trading at about 115.5 to the dollar yesterday, up more than 4 percent in less than a week. The yen gained 2 percent against the British pound.

Analysts are keeping a sharp eye on the yen because of concerns about an unwinding of what's known as the carry trade, which refers to the process in which people borrow in currencies with low interest rates, such as the yen, and invest those assets elsewhere. The rising yen suggests that investors are pulling out of those investments and putting their money, for safety reasons, back into the Japanese currency. This movement could hurt the availability of capital worldwide.

Fresh signs of trouble surfaced in the part of the U.S. mortgage industry known as subprime, further weighing down the market. New Century Financial, which issues the risky, subprime home loans to borrowers with questionable credit records, said late Friday that it was the subject of a criminal investigation into securities trading and warned it may violate loan agreements with its financial backers. Its shares dropped yesterday by $10.09, or 69 percent, to close at $4.56.

David G. Dietze, president and chief investment strategist of Point View Financial Services, said "carnage" in subprime markets had made investors wary of the financial service stocks, which make up roughly a quarter of the S&P 500.

"People are looking at some of the financial services companies and asking, 'To what extent could they be left holding the bag?' " he said, adding that all major banks have some exposure to subprime loans.


Palm dropped $1.80, or nearly 10 percent, to $16.50, wiping out its rally on Friday after speculation that Nokia might buy it.

Fremont General, a subprime lender, lost $2.82, or 32 percent, to $5.89, after saying it would sell its subprime loan business.

Alcoa dropped 97 cents, almost 3 percent, to $31.73.

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