Sunday, March 9, 2008

U.S. stocks fell to the lowest level since 2006, after record home foreclosures and an unexpected drop in payrolls heightened concern that the economy is in a recession.

The Standard & Poor's 500-stock index retreated 2.8 percent last week to 1293.37, the lowest closing level since August 2006. The Dow Jones industrial average lost 3 percent, to 11,893.69. The Russell 2000 Index, a benchmark for smaller companies, fell 3.8 percent to a two-year low of 660.11.

Washington Mutual and CIT Group led a decline in financial shares in the S&P 500. Citigroup and American International Group helped send the Dow below 12,000 for the first time since January. Nine of 10 S&P 500 industries fell after more borrowers with adjustable-rate loans walked away from properties, employers eliminated 63,000 jobs in February and Thornburg Mortgage and a Carlyle Group fund defaulted on loans.

"The problems that we're seeing in the housing market are going to continue," said Hans Olsen, chief investment officer of J.P. Morgan Private Client Services. "It's clear that we're heading into a period of economic slowdown. Credit is the lifeblood of the economy, so when you have problems it's never easily resolved."

The yield on two-year U.S. Treasury notes fell to 1.52 percent, the lowest since March 2004. Ten-year notes rose to 3.53 percent.

Financial shares trimmed their loss last week loss after the Fed said that it would add as much as $200 billion to the banking system over the next month to offset the credit crisis.

The Treasury will auction $24 billion of three-month bills and $22 billion of six-month bills tomorrow. They yielded 1.44 percent and 1.50 percent, respectively, in when-issued trading. One-month bills will be sold Tuesday.

"We've been in a recession for a while," said David Baker, the Boston-based chief investment officer at North American Management. "We're going to see likely earnings estimates being lowered going into the summer."

-- Bloomberg News