Wall St drops on credit fears and higher oil
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By Ellis MnyanduNEW YORK (Reuters) - Stocks fell on Thursday as fears of more credit losses in the financial sector jolted investors, while resurgent oil prices rekindled fears of a consumer spending slowdown.Shares of mortgage finance companies Fannie Mae and Freddie Mac reversed losses in volatile trading as uncertainty about a possible government bailout led to short-covering.The fears about financial stocks centered on major investment banks cutting the outlooks for other investment banks. They also forecast more write-downs at Wall Street firms, including Lehman Brothers and Goldman Sachs .Shares of Lehman Brothers fell more than 4 percent, while those of Goldman Sachs fell more than 2 percent. Shares of Bank of America , down 2.4 percent, were a top drag on the S&P 500, countering an advance in Exxon Mobil shares, helped by higher oil prices.Analysts said mounting credit losses buffeting the financial sector may exacerbate the impact of the housing slump on the broader economy, along with the rebound in oil prices."Being in cash still looks pretty darn good," said Andrew Kanaly, chairman of Kanaly Trust Company in Houston, Texas."It's really tough for the housing market to stabilize since there's no credit. We also had gotten a little rest in the price of oil, but not today."The Dow Jones industrial average <.DJI> slid 82.07 points, or 0.72 percent, to 11,335.36. The Standard & Poor's 500 Index <.SPX> shed 8.10 points, or 0.64 percent, to 1,266.44. The Nasdaq Composite Index <.IXIC> fell 27.11 points, or 1.13 percent, to 2,361.97.U.S. front-month crude jumped $5.12 to $120.65 a barrel as the dollar pulled back sharply from this week's eight-month highs versus a basket of currencies. The jump in oil prices fanned spending concerns and added to worries about inflationary pressures.Shares of Fannie Mae were up 4.8 percent at $4.61, while Freddie Mac slipped to $3.23. Initially, both stocks had fallen by about 20 percent after the market open.Fannie and Freddie are viewed by many as critical pillars of the U.S. housing market and investor are eager to see what sort of rescue they might get from the government.Citigroup analyst Prashant Bhatia widened his third-quarter loss estimate for Lehman Brothers. In addition, Bhatia and Lehman Brothers analyst Roger Freeman cut their quarterly earnings view for Goldman Sachs and Morgan Stanley .Bhatia projected Lehman to take an additional $2.9 billion of write-downs in the third quarter. He expects $1.8 billion of writedowns at Goldman and $1.7 billion at Morgan Stanley.Shares of Lehman fell to $13.06 on the New York Stock Exchange, while Goldman Sachs shares dropped to $154.79, and those of Bank of America, the No. 2 U.S. bank, fell to $28.48.In economic data, a government report showed the number of people filing for jobless benefits fell for the second week in a row last week.A survey by the Philadelphia Federal Reserve showed that the pace of contraction in U.S. Mid-Atlantic factory activity moderated in August as businesses found relief in a sharp pull-back in energy costs. Both indicators had caused stocks to reduce losses temporarily.(Editing by Kenneth Barry)
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