Thursday, March 19, 2009

NEW YORK (AP) - Stocks are ending lower as investors worry about the effects of the Federal Reserve’s plans to pump more than $1 trillion into the financial system.

A slump in financial shares has pulled the market lower Thursday. The retreat comes a day after the Federal Reserve announced plans to buy up $300 billion in Treasury bonds and increase its purchases of mortgage-backed debt securities.

According to preliminary calculations, the Dow Jones industrial average is down 86 at 7,401. The Standard & Poor’s 500 index is down 10 at 784. The Nasdaq composite index is down 8 at 1,483.

Advancing shares narrowly outpaced decliners on the New York Stock Exchange. Volume came to 1.6 billion shares.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

NEW YORK (AP) _ Stocks turned lower Thursday, taking a pause from a two-week rally, as investors weighed the impact of the Federal Reserve’s plans to pump more than $1 trillion into the financial system.

A slump in financial shares pulled the market lower, but energy stocks got a boost from soaring crude oil prices.

The retreat came a day after the Federal Reserve announced plans to buy up $300 billion in Treasury bonds and increase its purchases of mortgage-backed debt securities.

The effect of the actions will be to add hundreds of billions of dollars of new money into the financial system in an effort to break a logjam in lending by decreasing borrowing costs for a purchases of everything from homes to cars.

A day after the announcement, investors are assessing the potential downsides of the Fed’s giant cash injection, which could weaken the dollar against other currencies and trigger inflationary pressures in the United States.

“After the initial euphoria surrounding the surprise announcement yesterday, there’s a little more analysis of this going on and its leading to some questions,” said Todd Salamone, senior vice president of research at Schaeffer’s Investment Research.

In late afternoon trading, the Dow Jones industrial average fell 74.79, or 1 percent, to 7,411.79.

The broader Standard & Poor’s 500 index fell 7.50, or 0.9 percent, to 786.85, while Nasdaq composite index fell 6.13, or 0.4 percent, to 1,485.09.

Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange were volume came to 1.3 billion shares.

Wall Street’s decline comes on the heels of a buying spree that has driven the Dow up 14 percent and the S&P 500 index up 17 percent over the past seven days, a remarkable feat considering that only a few weeks ago the market was trading at levels not seen in more than a decade.

“We’ve had a lot of very positive news that I believe has caught a lot of people by surprise,” said Kent Engelke, managing director at Capital Securities Management in Glen Allen, Va.

Bucking the trend on Thursday were energy stocks, which rose as oil prices surged above $50 a barrel. Oil’s jump came as the dollar sank against other major currencies in response to the Fed announcement. When the greenback weakens it essentially makes crude cheaper in other currencies.

Chevron Corp. gained 91 cents, or 1.4 percent, to $67.50, while Occidental Petroleum Corp. rose $2.41, or 4.2 percent, to $59.25.

Oil rose $3.31 to $51.45 a barrel on the New York Mercantile Exchange.

The market was also feeling some jitters ahead of a quarterly expiration of options contracts on Friday. The sudden settling of many of those transactions can cause a surge in trading volume and more volatility in stock prices.

Investors got a dose of good news Thursday from General Electric Co., which forecast a profitable first quarter and full year for its struggling finance unit. Fears that falling real estate values and unpaid credit cards could further damage GE Capital have sent its stock price down 36 percent so far this year. GE’s slipped 18 cents to $10.14.

Stocks had risen earlier in the day Thursday after a report on jobless claims gave mixed messages about the state of the economy.

The number of initial requests for unemployment insurance last week dropped to a seasonally adjusted 646,000 from the previous week’s revised figure of 658,000, which exceeded economists’ estimates. But the number of people continuing to receive benefits set a new record for the eighth straight week, jumping 185,000 to a seasonally adjusted 5.47 million.

Financials shares, which helped lead the rally that began last week, couldn’t hold on to their gains and pulled the market lower. Some investors were selling to lock in profits after several of those stocks doubled or tripled in a matter of weeks.

Citigroup shares fell 39 cents, or 12.7 percent, to $2.69, while JPMorgan Chase & Co. dropped $2.14, or 7.9 percent, to $24.98. Citigroup had traded just under $1 early last week.

Analysts also said short-selling was likely at play on Thursday, as investors placed bets that stocks would fall further.

In corporate news, FedEx Corp. said it plans to cut more jobs and trim wages again, as the company reported its fiscal third-quarter profit tumbled 75 percent. The shipping company is often seen as a bellwether for the economy. Shares jumped $2.76, or 6.4 percent, to $45.81.

The Russell 2000 index that tracks small company stocks fell 3.86, or 0.9 percent, to 413.77.

Bond prices were mixed a day after steep gains because of news from the Fed.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.59 percent from 2.50 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.19 percent from 0.20 percent late Wednesday.

The dollar mostly fell against other major currencies, while gold prices soared.

Overseas, Japan’s Nikkei stock average fell 0.3 percent. Britain’s FTSE 100 rose 0.3 percent, Germany’s DAX index gained 1.2 percent, and France’s CAC-40 rose 0.6 percent.


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