Stocks Extend Losses After Sell-Off

Jul.27, 2007 in Market Outlook

Stocks fell sharply on Wall Street today, a day after a sharp sell-off caused by worries about slowing economic growth and tighter borrowing conditions.

The three major stock indexes — the Standard & Poor’s 500-stock index, the Dow Jones industrial average and the Nasdaq composite — were each down about 1.5 percent, with most of the decline coming in the last half-hour of trading. Crude oil prices surged nearly 3 percent, closing at $77.02 a barrel, just one cent short of its record.

Earlier, European markets closed essentially flat, after the plunge in the United States yesterday, but stock markets across Asia suffered one of the worst days of the year, with the benchmark Japanese index falling 2.4 percent.

Trading was light and mixed early in the day with the S.&P. rebounding from an early sell-off. An afternoon rally briefly got the index within a few points of yesterday’s close before the index hit the skids a little after 3:30 p.m.

“There is the potential for fear generating undue fear,” Tobias Levkovich, chief United States equity strategist for Citigroup, said about the stock market this week. “Nonetheless, it becomes real because its in the market.”

The S.&P. fell 1.6 percent, to 1,458.95, and is now up just 2.9 percent for the year after being up as much as 9 percent last week. The Dow fell 208.10 points, or 1.5 percent, to 13,265.47, and is now up 6.4 percent for the year, half of its gain as of last week. And the Nasdaq composite index fell 37.10 points, or 1.4 percent, to 2,562.24.

The yield on the 10-year Treasury note fell to 4.76 percent, from 4.787, and has now fallen for the eighth trading day in row.

Markets took little comfort from a revised report that showed the economy grew at a faster pace in the second quarter, 3.4 percent, not 3.2 percent as earlier reported. The report also showed that consumer spending was weaker than had been thought and that much of the growth was due to stronger government spending and an increase in exports.

The debt markets relatively newfound aversion to leveraged buyouts continued to rattle investors.

Cadbury Schweppes, the British candy maker, said today that it would delay the sale of its beverage unit, which makes Dr. Pepper and 7 Up, because of “extreme volatility.” The news came just days after private equity firms and their banks had trouble finding investors willing to lend them money to fund the buyouts of Chrysler, the automaker, and Alliance Boots, the British drugstore chain.

The information technology, energy, health care and information technology sectors led the market down. Of the 500 stocks in the S.&P., 359 ended down, 135 were up and 6 were unchanged. In the energy sector, the shares of major oil producers fell even as crude oil prices jumped and Chevron issued a strong profit report that was in line with analysts’ expectations. Mr. Levkovich suggested that the sell-off could be driven by profit taking, given that the energy sector is up nearly 19 percent for the year.

Investors may be thinking “I’ve made money here and I want to protect my winnings,” Mr. Levkovich said. “You never lose money taking a profit,” he added. In Asian trading today, few markets were spared from the downturn. South Korea’s Kospi index closed 4.1 percent lower after the biggest sell-off in three years. Also, the Taiex, in Taiwan, fell 4.2 percent; the Singapore Straits Times index fell 3.2 percent; the Nikkei 225 Stock Average in Japan fell 2.4 percent; and the Hong Kong Hang Seng index fell 2.8 percent. The China stock indexes were mainly flat.

The worst performers across the region were manufacturers heavily dependent on the United States consumer market amid fears over the health of the world’s biggest economy. Makers of semiconductors, cars and electronic appliances registered the biggest share price falls.

Donald Greenlees and Jeremy W. Peters contributed reporting.

By VIKAS BAJAJ

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