US stocks fell on Wednesday afternoon, on the first trading day of 2008, as oil and gas prices hit record highs and a report showing contraction in the manufacturing sector raised worries about the threat of a recession. The DJIA closed 220.86 points lower at 13043.96, the S&P500 fell 21.20 points to 1447.16 and the Nasdaq lost 42.65 points to close at 2609.63 Among stock movers, 29 out of 30 Dow components fell. Declines were led by Intel which fell on a Banc of America Securities downgrade. Bank of America also downgraded other stocks in the semiconductor sector, including Texas Instruments and National Semiconductor.
Starbucks slumped after a Bear Stearns analyst downgraded the coffee chain to peer perform from outperform.
On the upside, Amazon.com rose 4 percent after Citi Investment Research upgraded it to buy from hold.
Treasury prices rallied, as investors sought safety in government debt, lowering the yield on the 10 year note to 3.91 percent from 4.03 percent.
The Institute for Supply Management's manufacturing index fell to 47.7 from 50.8 in November, versus forecasts for a drop to 50.5. This showed the first contraction in manufacturing activity since January 2007 and the weakest reading since April 2003.
The afternoon also bought the minutes from the Federal Reserve's Dec 11 policy meeting, at which the bankers cut interest rates for a third meeting in a row. The minutes showed that deteriorating conditions in the housing, credit and financial markets prompted the cut. The policymakers were uncertain about the economic outlook at the time, and left the door open for further interest rate cuts.
US light crude for February delivery briefly rose above $100 a barrel for the first time ever, before pulling back slightly.
COMEX gold for February delivery surged $23.20 to $861.20 an ounce, an all time high, rising in tune with other dollar traded commodities.
The dollar slipped versus the euro and the yen.
The Tokyo stock market is closed today and will re-open tomorrow for half a day.
UK stocks closed lower on Wednesday, following a sharp contraction in US factory activity that overrode bid speculation boosting Alliance and Leicester. The FTSE100 closed 34.2 points lower at 6422.7. The index had earlier been buoyed by news that Alliance and Leicester held tentative talks with Santander last month, but fell immediately after the release of US data showing a contraction in factory activity. Alliance and Leicester closed 16.4 percent higher, but most other banks were lower, with RBS 1.35 percent lower, HSBC falling 0.8 percent and Lloyds TSB and HBOS both closing 0.6 percent lower.
The US Institute for Supply Management said its index of national factory activity fell to 47.7 in December from 50.8 in November, below expectations of 50.4 and the weakest reading since April 2003. A reading below 50 indicates contraction.
Oil stocks rose, with BP up 0.4 percent and Royal Dutch 0.9 percent higher, as resurgent violence in export countries added to supply concerns pushing oil prices to $100 a barrel.
Next rose 2.2 percent ahead of a Christmas trading update on Friday.
Economics
US ADP employment (Dec) 13.15 gmt
Private payrolls are expected to rise 50,000. HSBC's non farm payroll forecast of 70k assumes a 20k increase in government jobs.
US Initial claims (week 29 Dec) 13.30 gmt
Initial claims are expected of 345k.
US Factory orders (Dec) 15.00gmt
Factory orders are expected to rise 1.3 percent, assuming 2 percent for durable goods and 0.5 percent for non durable goods.
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