Thursday, February 14, 2008

NEW YORK (AP) — Wall Street retreated today after Federal Reserve Chairman Ben Bernanke predicted the economy will grow at a “sluggish” pace before recovering later in the year and that banks’ mortgage investments could lose more value. The Dow Jones industrial average fell more than 140 points.

Though the Fed chairman’s comments suggested the central bank is still open to further interest rate reductions, the tone was, as expected, somber. Bernanke said the housing and credit crises have weighed on the economy, curbing hiring, and that as a result, consumers will probably keep paring their spending. Consumer spending is critical for economic growth.

The Labor Department said today that the number of workers filing unemployment claims fell 9,000 to 348,000 last week. But after the January jobs report that showed the first net jobs loss in more than four years, Wall Street remains worried that consumers are turning cautious amid a slowdown in the housing market, mounting debt loads and rising prices for fuel and food.

After three strong days on Wall Street, investors found scant encouragement in Bernanke’s testimony and cashed in their gains.

“He was more bearish on the economy than he was before,” said Arthur Hogan, chief market analyst at Jefferies & Co. After this week’s better-than-expected report on January retail sales, investors found Bernanke’s assessment of the economy particularly disheartening.

“To have the Fed come in and talk about how things could be getting worse, not better, kind of takes the wind out of their sails,” Hogan said.

In midafternoon trading, the Dow Jones industrial average fell 121.60, or 0.97 percent, to 12,430.64.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 12.00, or 0.88 percent, to 1,355.21, and the Nasdaq composite index fell 29.44, or 1.24 percent, to 2,344.49.

Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.79 from 3.73 percent late yesterday.

Banks lost ground on Bernanke’s testimony, as well as a huge loss at the Switzerland-based bank UBS AG. UBS reported a fourth-quarter net loss of $11.28 billion due to investments in U.S. subprime mortgages. The bank, which posted its first full-year loss in a decade, said it expected more debt problems in 2008. Its U.S.-traded shares fell $2.79, or 7.5 percent, to $34.20.

Positive news from a major bond insurer did little to ease Wall Street’s broader concerns about the debt markets.

MBIA Inc. said yesterday it raised $1.1 billion from the sale of a nearly 40 percent stake in the company. The bond insurer then told Congress today it has enough cash to survive the distress in the industry, and that it needs neither a bailout nor tighter federal regulation. MBIA rose 26 cents, or 2.2 percent, to $11.90.

The dollar was mixed against other major currencies.

The weak dollar is, somewhat counterintuitively, helping to prop up the economy right now because U.S. goods are cheap for foreign buyers. The government reported today that the nation’s trade deficit, which had ballooned to record levels for five straight years, finally narrowed in 2007. In December, the deficit dropped 6.9 percent to $58.8 billion, thanks largely to strong increases in U.S. exports.

High oil prices, however, are keeping the deficit from narrowing further. Today, light, sweet crude oil rose $1.80 to $95.07 per barrel on the New York Mercantile Exchange.

Gold prices fell.

Declining issues outnumbered advancers by 3 to 1 on the New York Stock Exchange, where volume came to 846.6 million shares.

The Russell 2000 index of smaller companies fell 12.94, or 1.79 percent, to 708.99.

Overseas, Japan’s Nikkei stock average jumped 4.27 percent — its biggest advance in nearly six years — following strong economic growth figures and sizable gains on Wall Street yesterday. Britain’s FTSE 100 fell 0.01 percent, Germany’s DAX index fell 0.16 percent, and France’s CAC-40 rose 0.07 percent.

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