Stocks Steady Amid Mortgage Concerns
03/05/2007
NEW YORK (AP) - Wall Street managed to stabilize itself Monday, although investors remained nervous about mortgage defaults, a strengthening yen and tumbling stock markets abroad.
The major indexes fluctuated as investors tried to size up where the market was headed, and as traders swooped in to take advantage of stocks left severely depressed by last week's big decline.
"Probably it's better to save any judgment on this market today until the last half hour," said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis, noting that little has changed in terms of economic fundamentals, but that the market is still very volatile.
Concerns about losses over soured subprime loans - loans to customers with poor credit ratings - were one of the many factors behind Wall Street's selloff. Those worries were rekindled Monday when HSBC Holdings PLC (HBC), Europe's largest bank, said its 2006 earnings rose 5 percent but that it suffered $10.6 billion on losses on bad loans from its U.S. subprime mortgage operations.
Meanwhile, a rising yen added to concerns about an an erosion in the yen carry trade, which refers to the process of borrowing the low-yielding yen to acquire assets in other currencies with greater yields. A slowdown could hurt liquidity worldwide. By late morning, the U.S. dollar fell to 116.09 yen, up from its earlier lows near 115 but still well below its level less than a week ago above 120.
The Institute for Supply Management's index on the services sector gave investors little to cheer about when it registered at 54.3, lower than analysts' expected reading of 57.5 and January's reading of 59.0. Still, a reading above 50 indicates expansion, suggesting that U.S. service industries are still growing, albeit at a modest pace.
In late morning trading, the Dow Jones industrial average was up 56.56, or 0.47 percent, at 12,170.55, having fallen 75 in earlier trading.
Broader stock indicators were modestly higher. The Standard & Poor's 500 index was up 2.79, or 0.20 percent, at 1,389.96, and the Nasdaq composite index rose 2.12, or 0.09 percent, to 2,370.12.
Bonds were little changed, with the yield on the benchmark 10-year Treasury note at 4.50 percent, the same as late Friday. The dollar was higher against other major currencies except for the yen. Gold, though traditionally a safe-haven investment, continued to slide.
Oil prices dropped sharply, losing $1.29 to trade at $60.35 a barrel on the New York Mercentile Exchange due to concerns about the world economy.
Investors appeared to have been somewhat consoled by comments attributed to U.S. Treasury Secretary Henry Paulson by Japan's finance minister, Koji Omi. Neither Omi nor Paulson, who began a three-nation Asian tour in Tokyo on Monday, were concerned by the swings in regional stock markets, Omi told reporters in Tokyo. Both men contend the market mechanism was functioning well, Omi said.
Still, Asian and European stocks left U.S. investors nervous. The Nikkei fell for the fifth straight session to close down 3.3 percent, Hong Kong's Hang Seng index fell 4 percent and the Shanghai Composite Index, which has proven volatile in recent weeks, fell 1.6 percent.
In afternoon trading in Europe, Britain's FTSE 100 was down 0.70 percent, Germany's DAX index was down 0.62 percent, and France's CAC-40 was down 0.38 percent.
The Russell 2000 index of smaller companies was down 1.45, or 0.19 percent, at 773.99.
Investors will be watching for clues to the economy's health in speeches Monday by Federal Reserve officials. St. Louis Fed President William Poole is speaking on inflation and economic growth in Santiago, Chile, while Fed Governors Kevin Warsh and Randall Kroszner are speaking in Washington.
Though the markets have been tumbling, market watchers note that merger and acquisition activity is still strong - a positive sign for stocks.
Pathmark Stores Inc. (PTMK) rose $1.13, or 10 percent, to $12.38 after A&P supermarket operator Great Atlantic & Pacific Tea Co. (GAP) agreed to buy Pathmark for $1.3 billion in cash and stock. In a somewhat unusual occurence for a company making an acqusition, investors bid Great Atlantic & Pacific higher; the stock was up 94 cents, or 3.1 percent, at $31.80.
The subprime mortgage sector, already dragged down by concerns that too many people are defaulting, was kicked down further when New Century Financial Corp. (NEW), the second-largest subprime lender, said late Friday that a federal prosecutor and the New York Stock Exchange are conducting investigations into movements in the company's stock price. New Century fell $8.47, or 58 percent, to $6.18.
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