-- U.S. stocks declined for a second day after Merrill Lynch & Co. analysts said tighter credit markets will hurt earnings at banks and a gauge of home prices fell by a record in the second quarter.
Citigroup Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. retreated after Merrill lowered its recommendation on the shares and cut its profit estimates for this year and next. Lennar Corp. and D.R. Horton Inc. led homebuilder shares to the lowest since 2003.
The Standard & Poor's 500 Index decreased 12.46, or 0.9 percent, to 1,454.33 as of 10:08 a.m. in New York. The Dow Jones Industrial Average lost 90.39, or 0.7 percent, to 13,231.74. The Nasdaq Composite Index slipped 24.84, or 1 percent, to 2,536.41.
Financial stocks have posted the biggest drop among 10 industry groups in the S&P 500 this year amid concern that higher borrowing costs sparked by subprime mortgage defaults will erode earnings from trading and debt underwriting. Home values declined 3.2 percent in the three months ended June from the same period a year ago as sales dropped and lenders made it harder to get a home loan, according to a report today from S&P/Case-Shiller.
``It's too early to actually be buying'' financial shares, said Peter Sorrentino, who helps oversee about $6.5 billion as senior portfolio manager at Huntington Asset Management in Cincinnati. ``We're going to get some more debt issues floating to the surface.''
Europe, Asia
Stocks in Europe and Asia declined, led by financial companies on concern the subprime mortgage rout is spreading and will erode global economic growth. The Morgan Stanley Capital International World Index slipped 0.2 percent to 1,545.06.
U.S. stocks retreated yesterday after a report showed the glut of unsold homes rose to a 16-year high. Financial stocks contributed the most to the drop in the S&P 500 after Lehman said there may be ``extraordinary weakness'' in the market for loans held by Countrywide Financial Corp., the biggest U.S. home lender.
The S&P/Case-Shiller report also showed that prices in June in 20 U.S. metropolitan areas fell 3.5 percent from a year before. The decline compares with a 2.9 percent year-over-year drop in May.
``There's no light at the end tunnel for the housing problems,'' said Nick Raich, director of research at National City Private Client Group, which oversees $34 billion in Cleveland. ``The market's wondering how long this is going to last and how long it's going to drag on economic growth.''
Consumer Confidence
Consumer confidence fell in August by the most since just after Hurricane Katrina two years ago. The New York-based Conference Board's index declined to 105 from 111.9 in July Economists surveyed by Bloomberg News forecast the index would slip to 104 from an originally reported July reading of 112.6.
Investors will also look for clues on the outlook for interest rates from minutes of the policy-setting Federal Open Market Committee's Aug. 7 meeting, set for release at 2 p.m.
Citigroup, the largest U.S. bank, decreased $1.01 to $46.78. Lehman Brothers, the biggest underwriter of U.S. bonds backed by mortgages, dropped $2.18 to $55.57. Bear Stearns, the second- largest bond underwriter, slipped $2.65 to $108.55.
Merrill Lynch downgraded the shares to ``neutral'' from ``buy.'' Forecasts for 2008 ``appear increasingly unrealistic,'' New York-based analysts Guy Moszkowski and Patrick Davitt wrote in a report published today. ``Slower debt, mergers and acquisitions and equity underwriting businesses seem inevitable.''
Deephaven Capital
Knight Capital Group Inc. slipped $1.34 to $13.13. The brokerage's hedge-fund unit, Deephaven Capital Management LLC, said it may refund performance fees if it posts a loss for the final six months of the year. Deephaven has about $4 billion under management.
Lennar, the biggest U.S. homebuilder by sales, dropped 50 cents to $28.06. D.R. Horton, the second biggest, lost 18 cents to $15.03.
State Street Corp. lost $1.97 to $62.01. The investment company has credit lines in the form of asset-backed commercial paper to at least six so-called conduits, which account for 17 percent of its assets, the Times newspaper reported, citing regulatory filings. That proportion makes State Street the most highly exposed bank to conduits among its European and American peers, the London newspaper said.
Bed Bath & Beyond Inc. dropped $1.37 to $33.26. Merrill analysts said investors should sell shares of the largest U.S. home-furnishings retailer because of an ``uncertain demand environment'' amid the slump in U.S. housing.
Wendy's, PolyMedica
Wendy's International Inc. added 97 cents to $32.96. Billionaire investor Nelson Peltz entered into a confidentiality agreement with the U.S. hamburger chain as he considers making an offer. Peltz's Triarc Cos. and Trian Fund Management LP, which own a 9.8 percent stake in Wendy's, entered into the agreement yesterday, according to a U.S. regulatory filing made today.
PolyMedica Corp. jumped $6.33 to $51.62 after Medco Health Solutions Inc., the biggest U.S. manager of drug benefits, said it will buy the company for $1.5 billion to expand care for Americans with diabetes. The cash transaction is valued at $53 a share, the companies said. That's 17 percent more than PolyMedica's closing price yesterday of $45.29 a share.
The Chicago Board Options Exchange Volatility Index rose for a second day, gaining 6 percent to 24.09. Higher readings on the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect larger share-price swings in the next 30 days.
In other markets, the yen strengthened for a second day against the dollar on speculation banks will report more credit- market losses, prompting traders to pare higher-yielding investments funded by loans in Japan.
Treasury bills rose for the first time in six days and the price of crude oil slipped 0.2 percent to $71.80 a barrel.
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