U.S. Stocks Decline, Led By Fannie, Freddie; Hershey Retreats

Aug. 18 (Bloomberg) -- U.S. stocks declined for the first time in three days, led by banking and real estate shares, as the increased likelihood of a government bailout of Fannie Mae and Freddie Mac shook confidence in the financial system.

Freddie Mac fell to the lowest since 1991 and Fannie Mae slumped more than 10 percent, after Barron's said shareholders of the biggest sources of U.S. mortgage financing would be wiped out by a Treasury rescue. Lennar Corp. and Centex Corp. led a 3.8 percent drop by homebuilders. Hershey Co. retreated the most since 2002 after the chocolate maker said price increases will curb growth.

The Standard & Poor's 500 Index lost 5.42 points, or 0.4 percent, to 1,292.78 at 10:29 a.m. in New York. The Dow Jones Industrial Average retreated 57.08, or 0.5 percent, to 11,602.82, and the Nasdaq Composite Index slumped 11.32, or 0.5 percent, to 2,441.20. About three stocks fell for every two that advanced on the New York Stock Exchange.

``Every day, there's the possibility there could be some type of disaster in the financials,'' said Eric Green, the Cherry Hill, New Jersey-based director of research at Penn Capital Management, which manages $4.5 billion. Fannie Mae and Freddie Mac are the ``major lenders for the housing market in the United States, so bad news there usually affects the homebuilders and all of the financials.''

The S&P 500 has dropped 12 percent this year as the biggest U.S. housing slump since the Great Depression slowed consumer spending and spurred turmoil in mortgage markets that saddled banks with more than $500 billion of losses. The benchmark index for U.S. equities has rallied 6.9 percent from an almost three- year low on July 15.

MBIA, Ambac

Stocks advanced on Aug. 15, sending the S&P 500 to a third weekly gain. MBIA Inc. and Ambac Financial Group Inc. climbed after the largest bond insurers had their credit ratings affirmed and a report showed unexpected growth in New York manufacturing.

Fannie Mae lost 84 cents to $7.07, the lowest price since July 15, and Freddie Mac dropped 63 cents to $5.22. The S&P Supercomposite Homebuilding Index slumped as much as 4 percent. Lennar fell 65 cents, or 5.5 percent, to $11.17. Centex retreated 78 cents, or 4.9 percent, to $15.13. Financial shares in the S&P 500 slumped 1.9 percent, the most among 10 industries.

Hershey dropped $3.51, or 8.4 percent, to $38.11. The nation's largest chocolate maker boosted U.S. prices by an average 10 percent to help counter rising cocoa, packaging, energy and shipping expenses. Commodity costs will probably climb twice as fast in 2009 as in 2008, and hedging and marketing expenses will also advance, Hershey said.

Oil Gains

Energy stocks in the S&P 500 gained 0.8 percent, the most among 10 industries. Oil rose as the dollar dropped against the euro, boosting the appeal of commodities as a hedge against inflation. Crude for September delivery added 0.8 percent $114.73 a barrel in New York.

Exxon Mobil Corp. rose 0.9 percent to $77.74, for the steepest rally in the Dow average. Chevron Corp. had the second- biggest advance, climbing 0.4 percent to $84.57.

Raw-materials companies also advanced. Gold rebounded on speculation investors and jewelers will purchase cheaper supplies of the metal after an 8.4 percent decline last week that erased all of this year's gains. Silver also rose.

Freeport-McMoRan Copper & Gold Inc., the Phoenix-based producer of gold and copper, added $1.59 to $85.98. Newmont Mining Corp., the biggest U.S. bullion producer, rose 88 cents to $42.39.

Mitsubishi UFJ

UnionBanCal gained $7.76 to $73.25. Mitsubishi UFJ increased its bid to $3.5 billion to gain full control of the California bank that dodged the subprime lending crisis. Mitsubishi UFJ offered $73.50 a share for the 35 percent of UnionBanCal it doesn't already own.

Broadcom Corp. gained 47 cents to $27.93. The maker of chips for Nintendo Co.'s Wii video-game console may gain as much as 40 percent as it benefits from demand for products used in smart phones such as Apple Inc.'s iPhone, Barron's reported, citing Cowen & Co. analyst Daniel Berenbaum.

Take-Two Interactive Software Inc. retreated 99 cents to $23.85. Electronic Arts Inc. will let its offer to buy Take-Two Interactive expire tonight because the companies won't be able to merge in time for the holidays.