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Stocks lose 1.1 percent on China, IBM

THE stock market posted its biggest drop in a month on concerns that tighter lending in China could endanger an economic recovery. Disappointing earnings from IBM and Morgan Stanley added to investors' angst.

At the same time, a spike in the dollar pushed commodity prices sharply lower yesterday, hurting stocks of energy companies and materials producers.

The Dow Jones industrial average fell 122 points from a 15-month high but ended well off its lows for the day. Demand for safe havens like government debt rose, pushing yields lower in the Treasury market.

Stocks have posted sharp swings since last week as investors try to determine the overall direction of the market. The Dow fell 101 points Friday and jumped 116 Tuesday.

The latest slide came as concern grew that China's efforts to cool its rapid growth could hurt a global recovery. A top banking regulator said yesterday that China will increase monitoring of banks as it tries to prevent speculative bubbles in areas like real estate. Last week China took steps to restrict runaway lending.

Investors are also questioning whether a 68.2 percent gain in the benchmark Standard & Poor's 500 index in the past 10 months has been too much. Those doubts are intensifying as more companies report results from the final three months of 2009 this week. The early read is that cost-cutting has again helped boost profits, but revenues remain disappointingly weak.

IBM Corp. led the Dow lower. The company reported late Tuesday that its earnings rose 9 percent from a year earlier, while sales rose less than 1 percent. The company's forecast was seen as cautious.

"We might see profitability out of companies this season but we're not really seeing revenue growth," said Dan Cook, senior market analyst at IG Markets in Chicago.

Banks posted mixed results. Bank of America Corp. reported better results and said credit conditions were improving, but also said the economic environment is "fragile." Wells Fargo & Co. sounded an optimistic note on consumer resilience, but Morgan Stanley fell short of expectations.

The Dow fell 122.28, or 1.1 percent, to 10,603.15. The Dow had been down as much as 208 points.

The broader S&P 500 index fell 12.19, or 1.1 percent, to 1,138.04, and the Nasdaq composite index fell 29.15, or 1.3 percent, to 2,291.25.

Stocks fell Friday following an increase in bad loans at JPMorgan Chase & Co. Then, after a long holiday weekend, the market rose Tuesday led by a gain in health care stocks on hopes that the Democrats' loss of their filibuster-proof majority in the Senate because of a special election in Massachusetts would slow down reforms that might hurt the profits of health companies.

Cook said questions about the stability of the market are likely to increase as Feb. 1 approaches. That is when the Federal Reserve plans to halt most of the emergency lending programs it set up to help revive the economy. Traders looking to deploy some of the low-cost money circulating through the financial system have helped drive the surge since March.

"Once that cheap cash goes away, what's left?" Cook said. He predicts a "sizable correction" to let the economy catch up with the market.

Bond prices rose, driving their yields lower. The yield on the benchmark 10-year Treasury note fell to 3.66 percent from 3.70 percent late Tuesday.

The dollar rose, reaching a five-month high against the euro as concern grew about heavy debt loads in Greece.

Gold fell. The gain in the dollar pushed commodity prices lower because a stronger greenback makes them more expensive for foreign buyers. Crude oil fell US$1.40 to US$77.62 per barrel on the New York Mercantile Exchange.

Traders have been hoping to see greater reassurances from companies that the economy is strengthening. So far the earnings results have been mixed.

"We're going to be in the dance of one step forward and one step back as people digest all these earnings reports," said Frank Ingarra, co-portfolio manager at Hennessy Funds.

IBM fell US$3.89, or 2.9 percent, to US$130.25 after its report.

Bank of America said it lost US$5.2 billion in the fourth quarter, mostly from costs related to repaying US$45 billion in government bailout money. The stock rose 17 cents to US$16.49.

Despite improving bottom lines at Bank of America and Wells Fargo, many investors remain pessimistic about bank shares. JPMorgan Chase & Co. and Citigroup Inc. have both said in recent days that they remain cautious about the economy and aren't sure when loan losses will start to shrink.

Wells Fargo fell 46 cents to US$27.82, while Morgan Stanley fell 53 cents to US$30.63.

Brinker International, the owner of Chili's Grill & Bar, jumped US$1.95, or 12.7 percent, to US$17.26 after its results for the latest quarter topped expectations.

The Russell 2000 index of smaller companies fell 9.54, or 1.5 percent, to 639.61.

Three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares compared with 1 billion Tuesday.


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