Dow Falls Below 12,000 on Mortgage Woes

By TIM PARADIS

NEW YORK – Stocks fell Wednesday, pulling the Dow Jones industrials through the psychological 12,000 barrier for the first time since Nov. 6 as concerns about faltering subprime mortgage lenders extended a broad selloff in stocks.

The Dow first crossed the 12,000 mark in October.

The market showed its continuing nervousness about soured loans among subprime lenders. H&R Block Inc. added to the uneasiness by announcing after the closing bell Tuesday its fiscal third-quarter losses would rise because of a $29 million writedown at its mortgage arm.

The anxiety over mortgage lenders, particularly the subprime lenders that make loans to people with poor credit, pushed the Dow down by more than 240 points Tuesday, its second-biggest drop in nearly four years. The pullback resembled a 416-point drop in the Dow seen two weeks ago that began in part after a nearly 9 percent drop in stocks in Shanghai and amid concerns about subprime mortgages.

"The market just can’t get out of its own way right now. We traded down below 12,000, which is a psychological level and I think that is a pretty good move down," said Todd Leone, managing director of equity trading at Cowen & Co. "I still think it’s a healthy correction but the question is when do we stop?"

In midday trading, the Dow Jones industrial average fell 82.11, or 0.68 percent, to 11,993.85.

Broader stock indicators also fell. The Standard & Poor’s 500 index fell 8.12, or 0.59 percent, to 1,369.83, and the Nasdaq composite index fell 10.26, or 0.44 percent, to 2,340.31.

Bonds rose as stocks skidded; the yield on the benchmark 10-year Treasury note fell to 4.58 percent from 4.50 percent late Tuesday, while gold prices fell.

Light sweet crude fell 45 cents to $57.48 per barrel on the New York Mercantile Exchange.

"It seems like everyone is sitting on the sidelines right now and waiting to come back in," Leone said.

After Tuesday’s big decline and before stocks moved lower Wednesday, the market appeared to have been awaiting further economic data – notably Thursday’s producer price index and Friday’s consumer price index – to give them a sense of the economy’s health and the possibility of an interest rate cut, which could give the markets some relief.

The drop in U.S. stocks occurred as stocks in Europe headed for a sharply lower close. In afternoon trading, Britain’s FTSE 100 fell 2.37 percent, Germany’s DAX index fell 2.55 percent, and France’s CAC-40 fell 2.41 percent.

Japan’s Nikkei stock average closed down 2.92 percent, while Hong Kong’s Hang Sang index fell 2.57 percent and the sometimes volatile Shanghai Composite Index fell 1.97 percent.

The dollar, which was mixed against other major currencies, rose against the yen. Some observers have fingered the ascendent yen with contributing to the volatility seen in recent weeks on Wall Street. A rise in the yen against the dollar stirred concern of a reduction in the so-called yen carry trade, which occurs when investors use the yen to acquire higher-yielding assets elsewhere.

Following Tuesday’s sobering declines in stocks, investors appeared to find little reassurance in a General Motors Corp. report that it turned a profit for the fourth quarter, its first since the first quarter of 2006. GM, which rose 40 cents to $30.91, benefited from a big gain from the sale of about half its stake in its General Motors Acceptance Corp. financing arm.

But trouble at GMAC’s Residential Capital LLC real-estate financing business added to investor concern Tuesday after ResCap said it has struggled with a slower pace of loan originations and a further erosion in its subprime business.

H&R Block, the nation’s largest tax preparer, said it would delay filing its annual report and said the reduced value of its mortgage business pushed its quarterly loss higher. The stock fell 62 cents, or 3 percent, to $19.42.

In economic news, the deficit in the broadest measure of foreign trade narrowed by 14.6 percent in the final quarter of 2006 to $195.8 billion, the smallest quarterly imbalance since the summer of 2005, helped by a lower foreign oil bill. For 2006, the Commerce Department said the current account deficit, which reflects not only trade in goods and services but also investment flows between countries, set a record for the fifth consecutive year.

The Labor Department said the prices of imported goods rose 0.2 percent in February when excluding oil prices. In January, import prices fell 0.9 percent.

Weighing in again with mortgage data, the Mortgage Bankers Association said Wednesday its weekly mortgage index, which measures mortgage loan application volume, rose 2.8 percent on a seasonally adjusted basis from the prior week. On Tuesday, the group’s report that new foreclosures jumped to their highest-ever level in the fourth quarter of 2006 helped touch off the day’s cavalcade of sell orders.

In other corporate news, Citigroup Inc. fell 50 cents to $48.25 after announcing plans to begin a tender offer for Nikko Cordial Corp. on Thursday after raising its offer for Japan’s third-largest brokerage to quell shareholder opposition.

Lehman Brothers Holdings Inc., the fourth-largest U.S. investment house, credited robust trading and an expansion overseas with driving first-quarter profits. Lehman fell $2.68, or 3.7 percent, to $69.32.

The recent volatility in the U.S. markets, while perhaps normal, still drew concern from some investors who had grown accustomed to the calm conditions since U.S. stocks began their steep climb in July. Even before Wall Street’s recent uneasiness, volatility might have been expected to increase as the week neared the expiration of contracts for stock index futures, stock index options and stock options. The confluence of events can bring volatility as investors try to square their options and futures orders.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 955.3 million shares.

The Russell 2000 index of smaller companies fell 5.56, or 0.72 percent, to 763.56.

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