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Darkening outlook for companies pummels Wall Street

A DARKENING outlook for companies from banks to retailers to energy producers pummeled Wall Street yesterday, sending the Dow Jones industrials down nearly 250 points, or 2.94 percent, and giving the other major indexes a loss of 3 percent.

The plunge leaves the Dow and the broader Standard & Poor's 500 index down more than 9 percent in six sessions. The S&P 500, the gauge tracked by professional investors, has now given up half its gains since it closed at an 11-year low on Nov. 20.

One of the catalysts behind the market's latest bout of turbulence yesterday was the Commerce Department's December retail sales report. Wall Street knew retailers' cash registers weren't as busy this holiday season but the report was much worse than anticipated. The department said retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline analysts forecast.

The record sixth straight month of declines is only the latest symptom of the economy's ills. Consumers hit by steep drops in home prices, rising unemployment and difficulty accessing credit have no choice but to pull back. That's troubling for Wall Street because consumer spending makes up more than two-thirds of US economic activity. Many analysts predict the year-old recession, already the longest in a quarter-century, will persist at least until late this year.

"No doubt the retail sales numbers that came in just reminded us how bad the fourth quarter is going to look," said Jim Dunigan, managing executive of investments at PNC Wealth Management.

The confluence of bad news and fears about extremely weak fourth-quarter earnings has sent stocks plunging this month. Wall Street had rallied during December and at the start of the year on hopes for an improving economy, but companies' earnings and outlooks and the continuing stream of weak economic data have brought pessimism back to the market.

Analysts expect investors to refrain from buying until they have a better picture of companies' forecasts for 2009, which so far aren't looking too bright.

"It's once again the market kind of obsessing that there's really little good news about the economy," said Edmund Hyland, managing director and global investments specialist at JPMorgan Private Bank in Atlanta. "I think anytime you're in the kind of bear market we're in, you kind of struggle along the bottom for a while."

Investors are also increasingly uneasy about the financial industry. Deutsche Bank AG's announcement that it lost an estimated US$6.4 billion in the fourth quarter intensified the market's concerns that banks in general are still suffering and will need more government help.

"People were thinking we were coming toward the end of this financial meltdown, but as you can tell from the news today, we're not even close to the end yet," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams. "Financials are the backbone of the economy. If they aren't stable, you aren't going to see a sustainable rally."

After the close of trading, Apple Inc. announced that CEO Steve Jobs is taking a medical leave of absence until the end of June because his health issues are more complex than he thought. The news was likely to set off selling in tech stocks when the market reopened Thursday.

The Dow fell 248.42, or 2.94 percent, to 8,200.14. All 30 stocks that make up the Dow fell.

The S&P 500 fell 29.17, or 3.35 percent, to 842.62 and the Nasdaq composite index fell 56.82, or 3.67 percent, to 1,489.64. Both the Dow and S&P 500 hit intraday lows not seen since early last month.

The Russell 2000 index of smaller companies fell 20.62, or 4.35 percent, to 453.17.

Only 314 stocks rose on the New York Stock Exchange, while 2,796 fell. Volume came to a light 1.42 billion shares.

Bond prices rose as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.20 percent from 2.30 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.10 percent from 0.12 percent late Tuesday.

In other economic news yesterday, businesses cut inventories in November by the largest amount in seven years as companies tried to cope with a record plunge in sales. The Commerce Department said inventories declined by 0.7 percent, more than the 0.5 percent drop analysts expected. It was the third straight month that businesses have reduced their stockpiles.

The Federal Reserve's assessment of the economy by region, known as the Beige Book, offered few surprises. The findings showed the economy has weakened in the past two months as consumers have trimmed spending, retailers have seen sales fall and as factories have scaled back production.

On yesterday, bank stocks were among the biggest losers.

Citigroup Inc, which announced Tuesday it would give control of its Smith Barney brokerage business to Morgan Stanley, could soon shrink itself by one-third, according to a Wall Street Journal report yesterday. The Journal says Citi is likely to announce plans next week to shed two consumer-finance units, the bank's private-label credit card business and cut back on trading it does on its own behalf.

While other financial firms don't appear to be in as dire a situation as Citigroup - which is expected to post its fifth straight quarterly loss at the end of the week - the industry's troubles are far from over, as Deutsche Bank's loss showed.

Wall Street will get its first taste of how the US financial industry is faring Thursday, when JPMorgan Chase & Co reports earnings nearly a week ahead of schedule.

Citigroup plunged more than 23 percent, falling US$1.37 to US$4.53, while Morgan Stanley lost US$1.67, or 8.9 percent, to US$17.19. JPMorgan fell 44 cents, or 1.7 percent, to US$25.91.

Federal Reserve Chairman Ben Bernanke said Tuesday that more capital injections may be necessary to stabilize the financial markets and spur more lending.

Analysts at Morgan Stanley said HSBC PLC, Britain's biggest bank by market capitalization, may have to raise up to US$30 billion and halve its dividend as earnings deteriorate. Royal Bank of Scotland PLC also said it was raising around US$2.5 billion by selling its stake in Bank of China.

Among retailers, Macy's Inc fell 58 cents, or 5.8 percent, to US$9.47, while energy company Chevron Corp fell US$2.13, or 3 percent, to US$69.69.


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