Stocks still Fear the Credit Markets

NEW YORK - Stocks dropped on Tuesday, sending the three major indexes more than 1 percent lower, as worries about tightening credit conditions spread to the money market area.

Stocks were already sagging after Wal-Mart Stores Inc.'s (NYSE:WMT - News) gave a disappointing earnings report and profit outlook, blaming pressure from the housing market. Home Depot Inc (NYSE:HD - News) also reported a lower quarterly profit as the softer U.S. housing market hurt sales.

Financial-services stocks declined on the latest signs of a tightening credit environment. Trustees for two Canadian trusts said they were unable to issue new securities to repay maturing commercial paper and that a bank had declined to provide liquidity.

"It's confirmation that credit markets remain difficult and that there's not very much confidence in the credit market," said Michael Malone, trading analyst at Cowen & Co. in New York.

"Issues in the subprime market continue to spread throughout the system, so I think at this point in time, the question is, how bad are things going to get?"

The Dow Jones industrial average (DJI:^DJI - News) was down 166.07 points, or 1.25 percent, at 13,070.46. The Standard & Poor's 500 Index (^SPX - News) was down 21.13 points, or 1.45 percent, at 1,431.79. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 27.74 points, or 1.09 percent, at 2,514.50.

Sentinel, a money market mutual fund firm for commodities, has asked the U.S. Commodity Futures Trading Commission to allow it to halt client redemptions until it can conduct them in an orderly fashion, according to CNBC television.

Wal-Mart stock slumped 5.5 percent to $43.64 and Home Depot stock was down 3.8 percent to $33.92.

Stocks of large brokerages were some of the sharpest losers on the S&P 500. Shares of Goldman Sachs (NYSE:GS - News) were down 4.1 percent to $170.05 and Lehman Brothers (NYSE:LEH - News) lost 5.3 percent to $54.27 on the NYSE.

Shares of Countrywide Financial Corp. (NYSE:CFC - News) the largest U.S. mortgage lender fell after the company said foreclosures and delinquencies rose in July to their highest level in at least several years.

Countrywide stock was down 6.3 percent to $24.94 on the NYSE.