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Thursday, Aug. 16, 2007

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NEW YORK -- Stocks fell sharply Thursday after a move by Countrywide Financial Corp. confirmed fears of widening problems with some mortgages and tighter access to credit.

A sell-off overseas offered Wall Street little reason to try to stanch the bleeding a day after the Dow Jones industrial average closed below the 13,000 mark for the first time since April and the Standard & Poor's 500 index moved into negative territory for the year.

Investors' confidence took a drubbing Wednesday on concerns about potential trouble at Countrywide, the nation's largest mortgage lender. Countrywide, referring again to tightening credit conditions, said early Thursday it was forced to draw on an $11.5 billion credit line to fund operations.

Also Thursday, the New York Fed, which carries out the central bank's market operation, said it would step in with a 14-day repurchase agreement worth $5 billion. The Fed then said it would accept a second overnight repo of $12 billion. On Wednesday, the Fed accepted a "repo" of $7 billion, in which it buys that amount in securities from dealers, who then deposit the money into commercial banks.

Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up. But investors' anxiety still prompted them to sell.

In the first hour of trading, the Dow fell 76.09, or 0.59 percent, to 12,785.38. The index had fallen more than 100 points within the first few minutes of trading.

Broader stock indicators were also lower. The Standard & Poor's 500 index was down 5.40, or 0.38 percent, at 1,401.30, and the Nasdaq composite index dropped 1.41, or 0.06 percent, to 2,457.34.

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The Russell 2000 index of smaller companies was up 3.55, or 0.47 percent, at 755.09.

Bonds continued to rally as investors fled into safer securities. The yield on the benchmark 10-year Treasury note fell to 4.67 percent from 4.72 percent late Wednesday. Investors have also been hoping that policymakers might lower interest rates to help bolster the economy, which is a positive step for Treasurys.

However, St. Louis Fed President William Poole told Bloomberg Television after the closing bell Wednesday it wasn't necessary for the central bank to consider lowering short-term interest rates before the regularly scheduled meeting of its rate-setting committee next month.

Adding to the unease, the yen rose to a one-year high against the dollar, stirring concern that some investors were getting out of a trading strategy referred to as the yen carry trade - using the Japanese currency to acquire higher-yielding assets elsewhere. The dollar was down against most major currencies on Thursday.

Housing concerns will remain in focus during the session with a report due on July housing starts. Starts are expected to rise by a slightly smaller amount than in June, and data on building permits are expected to show an increase by about the same amount.

Investors will also get a reading from the Philadelphia Federal Reserve on regional manufacturing for August. The report will be released at midday.

Countrywide fell $3.74, or 17.6 percent, at $17.55 after the mortgage lender borrowed $11.5 billion from a group of 40 banks to fund loans, in a move that shows just how deep the lending crisis has become. The company has been slammed as the credit crunch has driven a number of its smaller peers to bankruptcy.

Also in focus during the session was J.C. Penney Co., which said second-quarter profit edged up nearly 2 percent year-over-year. The results topped Wall Street projections at a time when many on Wall Street have been concerned that consumer spending has slowed, which was reflected in comments from Wal-Mart Stores Inc. and Home Depot Inc. earlier this week.

J.C. Penney shares rose 83 cents to $63.40. Wal-Mart, the world's largest retailer, fell 23 cents to $43.05. Home Depot, the world's largest home improvement chain, declined 7 cents to $33.29.

Light, sweet crude fell $1.51 to $71.82 per barrel in premarket electronic trading on the New York Mercantile Exchange, giving back Wednesday's gains as storms brewing in the Caribbean didn't appear to pose a threat to energy operations.

Overseas, Britain's FTSE 100 fell 3.55 percent, Germany's DAX index fell 2.56 percent, and France's CAC-40 fell 2.82 percent. In Asia, Japan's Nikkei stock average fell 2 percent. Hong Kong's Hang Seng Index fell 3.3 percent, while the often-volatile Shanghai Composite Exchange fell 2.1 percent.

Light, sweet crude fell $1.51 to $71.82 per barrel in premarket electronic trading on the New York Mercantile Exchange, giving back Wednesday's gains as storms brewing in the Caribbean didn't appear to pose a threat to energy operations.

© 2007 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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