Stocks Fall on Concerns About Deficit, GM Woes

Stocks fell yesterday as General Motors inched closer to bankruptcy and concerns emerged about the government's growing deficit being used to fund recovery efforts.

The losses nearly wiped out Tuesday's gains, which were propelled by a surprisingly upbeat set of consumer confidence numbers. Investors, who have cheered signs that the economy's deterioration is slowing, yesterday moved to lock in profits. Financial stocks took some of the biggest hits, but the losses were broad-based.

The Dow Jones industrial average, an index of blue-chip stocks, closed down 2.05 percent, or 173.47 points, at 8300.02, while the broader Standard & Poor's 500-stock index fell 1.9 percent, or 17.27 points, to 893.06. The tech-heavy Nasdaq composite index was down 1.11 percent, or 19.35 points, to 1731.08.

Investors were spooked by the nearly $100 billion in debt auctions the Treasury Department is holding this week. An auction for four-week bills and five-year notes, both for $35 billion, received good demand, analysts said. But government officials will need to sell significantly more to fund financial recovery plans, they said. Another auction for $26 billion in seven-year notes is scheduled for today.

"The prospect of all of this new supply is causing some concern among bond investors that there won't be adequate demand," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Moody's reaffirmed the government's "Aaa" rating yesterday, despite "significant deterioration in the U.S. government's debt position." But some long-term Treasury bond prices fell anyway, causing their yields to rise to a six-month high, analysts said. The yield on a 10-year bond climbed to 3.73 percent from 3.55 percent yesterday, for example, reflecting a smaller demand. It is up from about 3.2 percent last week.

Bond prices tumbled last week when Standard & Poor's said Britain could lose its top credit rating, sparking concern that higher bond yields could translate into higher rates for mortgages and other forms of consumer debt, analysts said. "This will likely act as a stimulant for the U.S. mortgage market, bringing new and existing homeowners running to lock in fixed interest rates since they are bound to move higher," said Thomas Francis Nordby, a futures strategist with LaSalle Futures in Chicago.

Also weighing on stocks yesterday was a National Association of Realtors report showing that while existing-home sales rose slightly last month, prices continued to plunge. The Dow was dragged down by General Motors, which failed to reach a deal with its bondholders that could have helped the carmaker avoid a government-sponsored bankruptcy. Its stock fell 20 percent, to $1.15 a share, giving it the largest losses on the Dow.

Financial stocks lost ground after the Federal Deposit Insurance Corp. said the number of "problem" banks, which are at risk of failing, had risen. Wells Fargo and J.P. Morgan Chase were down 6 percent and 5 percent, respectively. SunTrust fell 5.6 percent.

But Bank of America managed to close nearly flat, down 0.64 percent, to $10.91 a share, after announcing it had raised almost $26 billion of the $34 billion called for by federal regulators after a stress test earlier this month. "We are quite pleased with the capital-raising effort and the progress toward completing the asset sales and establishment of the joint ventures," Joe L. Price, the bank's chief financial officer, said in a statement.