Surge to Start the Year Quickly Flickers Out

By Rick Babson, The Kansas City Star, Mo.

Jan. 4–Wall Street mostly recovered from an afternoon plunge Wednesday and produced a mixed close in the first day of trading in 2007.

Stocks gave up most of their gains — the Dow Jones industrial average swung as much as 175 points — after the minutes of the December Federal Reserve meeting showed that the central bank remains very concerned about the sharp decline in the housing market.

Stocks rose steadily throughout the morning and early afternoon after Monday’s New Year’s Day holiday and Tuesday’s national day of mourning for President Gerald R. Ford. Release of the Dec. 12 Fed minutes helped erase an early triple-digit gain after the Dow set an intraday high of 12,580.35.

Although the Fed minutes said inflation continues to moderate, the bleak assessment of the housing market unnerved investors who were betting that the sector’s problems wouldn’t necessarily spill over into other portions of the economy.

The Dow gained 11.37 points, or 0.09 percent, and closed at 12,474.52. The Standard & Poor’s 500 index fell 1.70, or 0.12 percent, to 1,416.60, while the tech-laden Nasdaq rose 7.87, or 0.33 percent, to 2,423.16.

Light, sweet crude settled $2.73 to $58.32 a barrel on the New York Mercantile Exchange as mild weather continued its hold over much of the United States.

A weak showing by General Motors Corp. hurt stocks. The world’s largest automaker fell $1.27, or 4.1 percent, to $29.45 after lowering its 2007 production forecast and reporting that its U.S. sales fell 9.6 percent in December. Ford Motor Co. shares were unchanged at $7.51 as the automaker held off Toyota Motor Corp. for the No. 2 spot in the U.S.

Earlier in the day, investors had cheered mostly solid readings on the economy and found reason for increased prospects for retailers Home Depot Inc. and Wal-Mart Stores Inc.

In a reading of December manufacturing, the Institute for Supply Management said it saw a softer-than-expected decline in construction spending. The ISM index came in at 51.4, stronger than the reading of 50 that had been expected.

Construction spending dropped by a less-than-expected 0.2 percent in November as housing activity fell for a record eighth month. The Commerce Department reported that building activity edged down to a seasonally adjusted annual rate of $1.18 trillion.

News that Home Depot’s Bob Nardelli resigned as chairman and chief executive gave a boost to stocks, as had a weekend report that Wal-Mart’s December same-store sales rose 1.6 percent.

Home Depot rose 91 cents, or 2.3 percent, to $41.07, while Wal-Mart gained $1.37, or 3 percent, to $47.55.

Locally, Applebee’s International Inc. was down 34 cents, or 1.38 percent, and closed at $24.33. Banc of America Securities downgraded shares of the Overland Park restaurant chain from "neutral" to "sell."

Interstate Bakeries Corp. was down 5 cents, or 2.08 percent, at $2.35. Shares plunged at the close after being up more than 20 percent. The maker of Twinkies and Wonder Bread said its loss in the four weeks ended Nov. 18 was down almost 30 percent from October.

ICOP Digital Inc. gained 21 cents, or 3.81 percent, to $5.72 after the maker of digital in-car video systems for law enforcement raised its fourth-quarter revenue estimate to $2.8 million from $2.5 million.

The Lenexa company said a sale of 40 units to the Hartford Police Department in Connecticut gave it a boost.

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The Star’s wire services contributed to this report. To reach Rick Babson, call (816) 234-4880 or send e-mail to rbabson@kcstar.com.

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Copyright (c) 2007, The Kansas City Star, Mo.

Distributed by McClatchy-Tribune Business News.

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