US stocks slumped Thursday as investors eyed reports showing higher consumer borrowing costs, weaker spending and more financial sector woes and opted to step back. Bond prices jumped, lowering the corresponding yields, as investors sought safety in government debt. The DJIA closed 224.64 points lower at 11431.43 , the S&P500 fell 23.12 points to finish at 1266.07 and the Nasdaq lost 22.64 points to close at 2355.73, fending off bigger losses thanks to gains in big tech stocks such as Microsoft and Intel. A report released in the late afternoon showed that consumer borrowing costs increased in June at the fastest pace in seven months. The selloff accelerated after that.
Late Wednesday, AIG posted a steeper than expected quarterly loss of $5.36bn due to massive writedowns related to the credit collapse. The company reported profit a year earlier. On a per share basis, the company lost 51 cents excluding one off items, versus forecasts for a 63 cent gain. The stock fell nearly 16 percent on Thursday, dragging on the Dow.
In company news, Citigroup agreed to buy back over $7bn in auction rate securities after the New York Attorney General said the company misled investors. The stock lost 6 percent. A variety of financial stocks declined, including Bank of America, Merrill Lynch and Lehman Brothers.
Wal-Mart reported July sales at stores open a year or more rose 3 percent, short of analysts expectations that sales would grow 3.4 percent. The stock fell over 5 percent.
Costco reported sales rose 10 percent, topping forecasts, while Target said sales fell 1.2 percent, a bigger than expected drop. A variety of retailers reported lacklustre sales, reflecting the end of the impact from the government stimulus checks mailed out earlier this summer. Clothing retailers were hit particularly hard, with Abercrombie and Fitch and Pacific Sunwear of America reporting steeper than expected declines. Abercrombie shares fell 10 percent and Pacific Sunwear fell 4.5 percent.
In economic news, Consumer spending has been hit by the currency slowdown, the spike in fuel and food costs and a tighter labor market. The government reported that the number of American filing new claims for unemployment last week rose by 7,000 to 455,000. That figure represents a more than 6 year high. Other economic news was more positive. The June pending home sales index showed sales rose 5.3 percent in the month versus forecasts for a drop of 1 percent.
US light crude for September delivery rose $1.44 to settle at $120.02 a barrel on NYMEX after ending the previous session at a three month low. Oil prices have slipped nearly 20 percent since peaking above $147 a barrel in July. But the price bounced back Thursday on concerns about Iran's nuclear program.
In currency trading, the dollar strengthened versus the euro and slumped against the yen.
In the bond market, Treasury prices rallied, lowering the yield on the 10 year note to 3.93 percent from 4.05 percent.
COMEX gold for October delivery fell $5 to $873.80 an ounce.
The Nikkei average rose 0.3 percent today, reversing earlier losses, with exporters such as Canon Inc gaining as the dollar edged up against the yen to hold near a seven month high hit this week. Toyota Motor extended gains after the company kept its forecasts unchanged despite posting a 28 percent drop in quarterly net profit on a strong yen and slumping US sales. The Nikkei closed 43.42 points higher at 13168.41.
Market players were wary however after the Japanese government cut its view on the economy on Thursday, dropping the word "recovery" in a monthly report for the first time in nearly five years as raw material costs and a global slowdown push the worlds No 2 economy towards a recession. Others said relief at having made it through the Japanese earnings season, with the bulk of results now out, helped boost stocks on Friday and would likely keep the market well supported over the next few weeks.
Some in the market said Toyota's afternoon gains could in part be due to a sense that the weaker yen would improve its earnings, and that this sentiment had set off short covering. Toyota assumed a more favourable yen exchange rate, at 105 to the dollar and 161 to the euro instead of 100 yen and 155 yen. That would have boosted operating profit by 280 billion yen except Toyota said the gain would be lose through weaker sales. Toyota rose 5.5 percent to Y4,830. It was the third biggest contributor to the Nikkei's rise.
Advantest Corp jumped 7.1 percent to Y2,500 after Mitsubishi UFJ Securities raised its rating to 2 from 4, saying it expects demand for testers for next generation dynamic random access memory chips to grow in 2009. Other exporters gained as well, with Canon Inc up 0.8 percent at Y5,1120 and Honda Motor Corp up 0.9 percent at Y3,470.
UK stocks closed lower on Thursday during a choppy session as corporate updates offered a mixed picture, while higher crude prices helped buoy oil companies but raised inflation concerns. The index was little affected by the Bank of England holding interest rates at 5 percent for the fourth straight month. The FTSE100 closed 8.6 points lower at 5477.5 after gaining 0.6 percent in the previous session Oil and gas producers were the top gainer by sector, helped by crude prices that rose toward $120 a barrel as supply concerns returned to centre stage. BP, Royal Dutch Shell, BG Group, Cairn Energy and Tullow Oil added between 0.5 and 3.4 percent.
British Airways fell 4.9 percent as traders pointed to the rising energy costs.
Smith and Nephew climbed 5.2 percent after the company posted better than expected second quarter earnings as revenues hit $1bn for the first time.
Banks gained as Barclays first half profits beat forecasts and investors were cheered by stronger than expected revenue growth and capital position, and good cost control. Barclays added 1.6 percent, HBOS was 0.5 percent higher and Lloyds TSB gained 1.4 percent. RBS fell 0.5 percent ahead of its first half results today.
Investors remained cautious due to poor global economic growth, financial market troubles and falling house prices. British house prices fell at a record annual rate in July to their lowest level in two years, data from HBOS showed.
Friends Provident fell 4.9 percent after a 20 percent drop in first half profit, at the low end of expectations, as pensions protection and investment sales fell.
Xstrata lost 0.7 percent. The miner unveiled a $10bn takeover bid on Wednesday for Lonmin, which gained 0.4 percent. Antofagasta and Eurasian Natural Resources rose 4.4 and 9.8 percent respectively.
Liberty fell 5.4 percent to 851.49 pence, after JPMorgan downgraded the stock to underweight from neutral and slashed its price target to 660 pence from 1000 pence.
EconomicsUS Non farm productivity (Q2, prelim) 13.30 bst
With non farm business output rising 1.7 percent in Q2 and payroll hours falling by 0.7 percent, productivity is seen rising 2.4 percent. Assuming compensation per hour rise 4 percent (GDP compensation rose 3.3 percent), a 1.6 percent increase in unit labour costs is expected.
US Wholesale inventories (Jun) 15.00 bst
The wholesale inventory to sales ratio has continued to decline for most categories. For motor vehicles and parts, this ratio has trended upward over the past year, reflecting slower auto sales, and automakers may continue to scale back production in the medium term. In June wholesale inventories are seen rising 0.6 percent.
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