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U.S. stock futures drop sharply on payrolls report

Dollar falls below 102 yen, first time since January 2005

By Steve Goldstein, MarketWatch

Last Update: 8:37 AM ET Mar 7, 2008

LONDON (MarketWatch) — U.S. stock futures on Friday dropped sharply after data
showing an unexpected drop in monthly employment, providing the clearest sign yet
of a recession.

S&P 500 futures dropped 13.8 points to 1,294.10 and Nasdaq 100 futures dropped 8
points to 1,706.25. Dow industrial futures fell 129 points.

U.S. nonfarm payrolls fell by 63,000 in February, the second straight decline in
employment, the Labor Department reported Friday. It was the largest drop in
payrolls since March 2003. Economists were looking for a gain of about 20,000.

Payrolls for December and January were revised down by 46,000.

The unemployment rate fell unexpectedly to 4.8% in February from 4.9%, due to a
450,000 decline in the labor force, the largest drop in nearly five years.
Average hourly earnings rose 5 cents, or 0.3%, to $17.80 an hour.

Bonds climbed on the data, sending yields on 10-year Treasury notes down to
3.488%. The dollar’s drop against the Japanese yen accelerated, and gold futures
jumped nearly $11 an ounce.

The contraction may fuel speculation that the Federal Reserve may make an
emergency rate cut.

San Francisco Fed president Janet Yellen had said at a conference in Paris that
quite a bit of slack could emerge in the labor market, which could put downward
pressure on inflation.

But Dallas Fed President Richard Fisher, also speaking in Paris, said it would be
“dangerous” if the Fed would react too quickly to any new information or event.

While the economy is struggling, the situation in credit markets is even worse.

The Federal Reserve took steps to alleviate problems in the banking sector at
least, saying it was increasing the amounts outstanding in the term auction
facility in March to $100 billion and announcing a fresh $100 billion term
repurchase transaction.

Ambac Financial (ABK) on Friday said it raised $1.5 billion through selling
common stock as well as bonds that convert into stocks. Its common stock offering
was priced at $6.75 vs. a close on Thursday of $7.42. Ambac shares dropped 12% in
pre-open trade to $6.54.

Carlyle Capital, the investment fund affiliated with The Carlyle Group, meanwhile
reported a fresh wave of margin calls and said some of its residential
mortgage-backed securities have already been liquidated by investors.

Elsewhere, National Semiconductor (NSM) rose 9% after reporting
better-than-forecast gross margins during its fiscal third quarter. The company,
which last month had trimmed its revenue outlook for the third quarter, also
missed analyst estimates on current quarter revenue.

Marvell Technology (MRVL) topped analyst estimates on fourth-quarter earnings,
citing strong revenue growth of storage and Ethernet connectivity products.

Ciena (CIEN) rose 3% in pre-open deals after nearly tripling its quarterly
profit.

Atari (ATAR) may gain after majority owner Infogrames Entertainment submitted an
offer to buy out the shares it doesn’t already own. Atari is forming a special
committee to consider the bid.

After the Wall Street losses on Thursday, international stock markets suffered.
The Nikkei 225 and the Hang Seng each lost over 3%, while European stocks dropped
over 1%.

U.S. stocks slumped on Thursday, with the Nasdaq Composite and S&P 500 hitting
their worst levels since 2006 and the dollar tumbling to a new dollar against the
euro, after more bleak news from the financial sector, including a default at
Thornburg Mortgage. The Dow Jones Industrial Average lost 214 points, the S&P 500
dropped 29 points and the Nasdaq Composite lost 52 points.

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