Banks' Moves Drag Down Stocks

Sunday, January 18, 2009

U.S. stocks fell last week, led by financial companies after Citigroup said it would split in two to stanch losses and after Bank of America required emergency federal funds for its takeover of Merrill Lynch.

Citigroup dropped the most in Standard & Poor's 500-stock index and traded near a 14-year low reached on Nov. 21. Bank of America was the biggest drag on the S&P 500 and the Dow Jones industrial average, sliding almost to an 18-year low. All 10 industry groups in the S&P 500 declined as government data on retail sales and unemployment indicated the recession may deepen.

The S&P 500 decreased 4.5 percent for the second week in a row, sliding to 850.12. The Dow slipped 3.7 percent, to 8281.22. The tech-heavy Nasdaq composite index was down 2.7 percent, to 1529.33. The Russell 200 index of small companies retreated 3.1 percent, to 466.45.

"The confidence level in banks is at an all-time low," said Robert Lutts, president of Cabot Money Management in Boston. The first earnings reports "have scared everybody, so people are reducing positions en masse all at the same time before further news comes out."

The week's drop erased almost half of the S&P's 24 percent rebound from an 11-year low of 752.44 in November. The index fell 38 percent last year, its biggest drop since 1937, as more than $1 trillion in bank losses stemming from falling U.S. home prices froze lending and spurred a global recession.

For the week, Citigroup lost 48 percent, while Bank of America was down 45 percent.

Alcoa, the largest U.S. aluminum producer and the first company in the Dow to release fourth-quarter results, slid 13 percent after falling prices and demand led to its first net loss in six years.

Companies reporting earnings this week include IBM, Johnson & Johnson, Microsoft, Apple, Google and Ford.

Yields on Treasury securities declined, trading near the record lows reached in December as demand for the safest investments crested. The 10-year note's yield, which touched 2.04 percent on Dec. 18, fell to 2.31 percent from 2.39 percent.

The Treasury will auction $27 billion of three-month bills and $27 billion of six-month bills on Tuesday. They yielded 0.13 percent and 0.31 percent, respectively, in when-issued trading. The Treasury will sell one-month bills on Wednesday.

-- Bloomberg News

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