U.S. Markets Down on Economic Data

By Renae Merle
Washington Post Staff Writer
Friday, January 30, 2009; 4:24 PM

Stocks slumped today after a government report showed the U.S. economy shrank at the fastest pace in more than 25 years during the fourth quarter.

The Dow Jones industrial average closed down 1.8 percent, or 148 points, while the Standard & Poor's 500-stock index was down 2.3 percent, or 19 points. The tech-heavy Nasdaq fell 2.1 percent, or 31 points.

The Dow briefly traded below 8000 today. The market has found a "rough bottom," said Collin Monsarrat, a trader at Birinyi Associates in Westport, Conn. But "that doesn't mean go rush out and buy. There is still a lot of risk in the market."

Despite rallying earlier this week, after two days of sells-offs, the market is headed toward closing the week in the red. Investors have largely shrugged off massive layoff announcements and signs of increasing weakness in the housing market, while cheering reports that government officials are contemplating a program to buy up the toxic assets of troubled banks.

Today brought new evidence of the weakening economy. The gross domestic product shrank at a 3.8 percent seasonally adjusted annual rate during the last three months of the year, according to Commerce Department data. That was the steepest contraction since 1982, but better than the 5.5 percent decline many analysts expected.

The GDP figure was not as bad as expected, Nigel Gault, chief U.S. economist for IHS Global Insight, said in a research note, "but scratch the surface just a little and the good news melts away. Spending across most major private sector categories plunged, and the GDP decline was moderated only by a build-up of inventories."

The economy's contraction is likely to continue during the first half of this year, economists said.

Investors also digested mixed earnings reports today.

Exxon Mobil was down 0.7 percent after reporting that plummeting fuel prices dragged down profits more than 30 percent in the fourth quarter. But the company still managed to report a profit of $45 billion last year.

Rival Chevron earned $5 billion during the fourth quarter and $24 billion for the full year. Its stock was flat.

Honda's stock fell about 6.4 percent after it reported that profits tumbled 90 percent during the past quarter.

Procter & Gamble reported that its fourth-quarter quarter profit climbed 53 percent after it sold its Folgers coffee business. But the company lowered expectations for 2009. Its stock was down 6.4 percent. "As expected, this was a particularly challenging quarter," A.G. Lafley, the company's chief executive, said in a statement. "We expect the environment will remain difficult and highly volatile -- at least in the near term."

Crude oil was up 0.6 percent to $41.68 a barrel on the New York Mercantile Exchange.

Overseas stocks were down. London's FTSE and the Dax in Germany fell 1 percent and 2 percent, respectively, and Japan's Nikkei tumbled about 3 percent.

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