- The Washington Times - Monday, April 20, 2009

NEW YORK (AP) - Investors are having doubts about banks’ profit reports and wondering whether their better-than-expected performance masks larger problems with bad debt.

Stocks fell sharply early Monday as investors sold financial stocks and locked in profits after a six-week rally. The major indexes slid 2-3 percent, including the Dow Jones industrial average, which fell more than 200 points.

Worries about the financial industry overshadowed Oracle Corp.’s announcement that it would acquire Sun Microsystems Inc. for $7.4 billion and a $6 billion bid by PepsiCo Inc. to buy its two biggest bottlers.

The news came at the start of the busiest week yet for companies reporting results from the first three months of the year. Investors are looking for signals that a rally from 12-year lows in early March can continue.

Wall Street has been emboldened by early signals that the economy could be stabilizing, but after a 24 percent surge in the Dow Jones industrial average some investors are asking whether the market has risen too quickly.

Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said traders are now viewing bank earnings with more skepticism amid concerns that even the better-than-expected results are disguising problems. Income from trading and low-cost borrowing rates have boosted results but not erased more difficult problems with bad debt, he said.

“They’re looking at bank numbers and are saying they are not that great,” Saluzzi said.

In midmorning trading, the Dow fell 210.04, or 3.6 percent, to 7,921.29.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index fell 24.83, or 2.9 percent, to 844.77, and the Nasdaq composite index fell 50.63, or 3 percent, to 1,622.44.

More than eight stocks fell for every one that rose on the New York Stock Exchange, where volume came to 357.2 million shares.

Concerns about the sustainability of bank earnings weighed on financial stocks. Bank of America earned more than expected in the first quarter but also set aside $13.4 billion to cover losses on souring debt. The stock fell 14.3 percent.

Citigroup Inc. fell 12.9 percent, while JPMorgan lost 3.8 percent.

Investors are also cautious about financials after The New York Times reported that the White House and the Treasury Department could avoid having to ask for more money beyond the $700 billion already allocated for the government’s bank rescue fund by converting the government’s loans into common stock. Such a move would give the government a controlling stake in banks.

Wall Street was more upbeat about the Oracle deal, which carries a 42 percent premium to Sun’s Friday closing stock price of $6.69. Sun jumped 35.7 percent, while Oracle fell 5.2 percent.

Beverage and snack maker PepsiCo Inc. offered to acquire Pepsi Bottling Group and PepsiAmericas in an effort to cut costs. Pepsi lost 3.5 percent, while Pepsi Bottling and PepsiAmericas both jumped 21 percent.

In earnings news, drug maker Eli Lilly & Co.’s first-quarter earnings rose 24 percent on higher sales of the antidepressant Cymbalta and as costs for Humalog, a form of insulin Lilly makes, remained flat. Shares edged up 0.3 percent.

Hasbro Inc. fell 2.1 percent after the nation’s second-largest toy maker said first-quarter profit fell 47 percent because of a stronger dollar and as retailers reduced inventory levels.

Investors are parsing earnings for information on the direction of the economy. Since March, figures on home sales, manufacturing, retail sales and even unemployment have signaled that the economy might not be worsening as quickly as it had been earlier in the year.

The economic news isn’t all good, however. The Conference Board, a private sector group, said Monday its monthly forecast of economic activity fell 0.3 percent in March. Economists surveyed by Thomson Reuters expected a 0.2 percent slip.

The index is designed to forecast economic activity three to six months in the future based on 10 components including stock prices, money supply, unemployment claims, orders by manufacturers and building permits.

In other market moves, the Russell 2000 index of smaller companies fell 19.88, or 4.2 percent, to 459.49.

Bond prices mostly rose, sending the yield on the 10-year Treasury note down to 2.85 percent from 2.95 percent late Friday. The yield on the three-month T-bill was unchanged at 0.13 percent.

The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell $4.05 to $46.28 a barrel on the New York Mercantile Exchange.

Overseas, Japan’s Nikkei stock average rose 0.19 percent. In afternoon trading, Britain’s FTSE 100 fell 2.8 percent, Germany’s DAX index fell 4 percent, and France’s CAC-40 fell 3.7 percent.

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