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Stocks fall after agency cuts Portugal debt rating

MAJOR stock indexes fell from their 2010 highs yesterday as weakness in the housing market and rising European debt loads revived investors' pessimistic view of the economy.

The Dow Jones industrial average fell about 53 points. It was only the Dow's second drop in 12 days. Broader stock indexes also slid.

Treasury prices tumbled after a government debt auction drew only modest demand for a second straight day. That raised concern that the government will have to pay more to attract buyers for its debt. Washington has been issuing record amounts of debt to help revive the economy.

The drop in stocks comes after Fitch Ratings lowered Portugal's credit rating. The rating agency said the country's recovery will be slower than others that use the euro. Fitch contends that could hurt Portugal's ability to repay its debt.

Debt problems in Europe have been one of the few drags on stocks in recent months. Rising debt in Greece, Portugal and other nations that use the euro have investors worried that troubles there could upend a nascent global recovery.

The dollar rose sharply against the euro and other major currencies. The dollar is at its highest level against the euro since May. The stronger dollar makes commodities more expensive to foreign buyers. That cuts into demand.

Stocks have been carving steady gains for more than a month as economic reports signal slow improvement in the economy. That has kept cautious traders from placing big bets on a rebound. Some analysts were already expecting a retreat because major stock indexes had touched new highs for the year.

Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, said investors have been too quick to look past risks still facing the economy.

"There are quantitative issues that the markets have been ignoring," he said. "I believe that markets are somewhat extended."

The Dow fell 52.68, or 0.5 percent, to 10,836.15, a day after closing at its highest level since September 2008.

The Standard & Poor's 500 index dropped 6.45, or 0.6 percent, to 1,167.72. The index also closed Tuesday at its highest level in nearly 18 months.

The Nasdaq composite index fell 16.48, or 0.7 percent, to 2,398.76. On Tuesday, the index reached its best level in 19 months.

Bond prices dropped after an auction of US$42 billion in five-year Treasury notes drew weak demand. The yield on the five-year note, which moves opposite price, rose to 2.59 percent from 2.42 percent.

The yield on the benchmark 10-year note rose to 3.84 percent from 3.69 percent late Tuesday.

An auction Tuesday of US$44 billion in two-year notes also saw a drop in demand.

The drop in the stock market wasn't as steep as in Treasurys.

Robert Froehlich, senior managing director at Hartford Financial Services, said the slide in stocks wasn't worse because the financial problems in Portugal weren't totally surprising. Froehlich said the recent slow climb in the market signals that investors don't have strong opinions about which way the market is going.

"What's the next move of the Dow - 12,000 or 8,000? No one is willing to make that big bet," he said.

In economic news, a Commerce Department report on new home sales showed the market is continuing to contract. Sales unexpectedly fell to the lowest level on record in February as bad winter weather kept buyers out of the market.

New home sales fell 2.2 percent last month to a seasonally adjusted annual sales pace of 308,000. Economists polled by Thomson Reuters had forecast sales would rise to 320,000.

The report comes a day after the National Association of Realtors said sales of existing homes fell last month. The drop wasn't as steep as forecast, however.

A recovery in housing has been uneven. Reports that beat even modest expectations have regularly been met with buying on Wall Street, such as Tuesday's big gains. The Dow jumped nearly 103 points, or 1 percent.

Investors brushed off a report on orders to factories for big-ticket manufactured goods that showed continued growth. Unlike the housing market, the manufacturing industry has shown steady improvement in recent months.

Durable goods orders - items expected to last at least three years - rose 0.5 percent last month, slightly below expectations for 0.7 percent growth. However, it was the third straight month orders rose, and excluding the volatile transportation sector, orders increased by more than expected.

Orders climbed 0.9 percent in February excluding aircraft and other transportation orders. Economists had forecast an increase of 0.6 percent.

The government's weekly jobless claims report could shape trading Thursday. High unemployment is seen as the biggest obstacle facing the economy.

In corporate news, homebuilder Lennar Corp. said its fiscal first-quarter loss narrowed. However, the company said it expects to return to profitability this year. Its shares rose 63 cents, or 3.7 percent, to US$17.69.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1 billion shares, compared with 985 million Tuesday.

The Russell 2000 index of smaller companies fell 6.62, or 1 percent, to 683.68.


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