- The Washington Times - Friday, September 25, 2009

NEW YORK | Investors dumped stocks after an unexpected drop in home sales and a slide in oil prices fanned worries about the pace of the economy’s recovery.

Stocks fell for a second day after the National Association of Realtors said sales of existing homes dropped 2.7 percent in August after jumping 7.2 percent in July. Economists had expected sales would post their fifth straight monthly increase.

The Dow Jones Industrial Average ended with a loss of 41 points to bring its two-day drop to 122 points.

The market climbed in morning trading after a surprise 21,000 drop in the number of people seeking unemployment benefits. Economists had been expecting an increase.The housing numbers upended that advance, however, and stocks never recovered.

The market retreated a day after investors looked past a more upbeat assessment of the economy from the Federal Reserve and worried about what will happen once the government starts to wind down its economic stimulus efforts.

The Fed said Wednesday that it would slow its purchases of mortgage-backed securities to extend the program into early next year. A first-time homebuyer’s credit is set to expire in November. On Thursday, the Fed said it would reduce two emergency lending programs. One is for short-term loans to banks, while the other allows investment firms to temporarily swap risky securities for safe Treasurys.

“We know what the data looked like with the economy on life support,” said Stephen Wood, chief market strategist at Russell Investments. “What the market is beginning to price is what will the data look like when the Fed starts withdrawing that life support, and that is not nearly as clear.”

Investors are also questioning how much farther the stock market can climb. The Standard & Poor’s 500 Index has jumped 55.3 percent since hitting a 12-year low March 9. Many market watchers have been predicting a big drop in stocks and see unbroken gains as a sign of indiscriminate buying and a cause for worry.

The Dow fell 41.11, or 0.4 percent, to 9,707.44. The Dow is now down about 300 points from the psychological benchmark of 10,000, a level it fell below nearly a year ago.

The S&P; 500 fell 10.09, or 1.0 percent, to 1,050.78, and the Nasdaq Composite Index fell 23.81, or 1.1 percent, to 2,107.61. The Russell 2000 Index of smaller companies fell 11.62, or 1.9 percent, to 601.75.

“Basically, after the [Fed] meeting, investors took that as an excuse to take some profits,” said Carmine Grigoli, chief U.S. investment strategist at Mizuho Securities in New York.

Commodities extended their losses from Wednesday as the dollar rose. The currency has weakened this year amid massive government stimulus programs and low interest rates, which has been a boon to commodities. Commodities are priced in dollars, and a weak greenback makes them more appealing to foreign buyers.

Oil dropped $3.08, or 4.4 percent, to settle at $65.89 a barrel on the New York Mercantile Exchange. That added to a nearly 4 percent slide the day before that came after the government said demand for energy was weak.

Gold ended below $1,000 for the first time in two weeks. Silver also posted a big drop.

Bond prices rose, pushing yields higher. The yield on the benchmark 10-year Treasury note fell to 3.38 percent from 3.43 percent late Wednesday.

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