Dec. 13 -- U.S. stocks dropped, led by banks and brokerages, on concern that a coordinated attempt by central banks in North America and Europe to relieve gridlock in credit markets will fail.
Morgan Stanley, Bear Stearns Cos. and Merrill Lynch & Co. led declines in financial shares after Lehman Brothers Holdings Inc. said some precautions against mortgage losses were ineffective. Home Depot Inc. and Target Corp. led a gauge of chain stores lower after the biggest surge in wholesale inflation in 34 years overshadowed a stronger-than-expected report on holiday sales.
The Standard & Poor's 500 Index lost 6.81, or 0.5 percent, to 1,479.78 at 2:51 p.m. in New York, trimming its yearly advance to 4.3 percent. The Dow Jones Industrial Average decreased 19.43, or 0.1 percent, to 13,454.47. The Nasdaq Composite Index fell 18.54, or 0.7 percent, to 2,652.6. About three stocks declined for every one that rose on the New York Stock Exchange. Benchmarks in Asia and Europe also slumped.
``Doing other things to inject liquidity really doesn't address the issue of broader economic weakness,'' said David Joy, who helps oversee $161 billion as chief market strategist for Riversource Investments LLC in Minneapolis. With financials, ``it's too early to step up and take a stand that these stocks are undervalued. If you dip your toe in the water, you could still get burned.''
The cost of borrowing euros stayed at the highest since December 2000, signaling the plan by the Federal Reserve and four other central banks to inject funds into the financial system isn't lowering borrowing costs and boosting lending.
`A Lot of Uncertainty'
Morgan Stanley, the second-biggest securities firm, lost 93 cents to $49.44. Merrill, the third largest, slumped $2.28 to $56.53. Bear Stearns, the second-biggest U.S. mortgage-bond underwriter, dropped $3.73 to $97.11.
Lehman Brothers lost 25 cents to $61.57. The largest U.S. underwriter of mortgage bonds said fourth-quarter investment banking revenue fell 3 percent to $831 million and fixed-income capital markets revenue declined. Net income fell 12 percent to $886 million.
``There will be a lot of people looking at their report to try to gain some insight into what might happen down the road with other brokerages and banks,'' said Ed Laux, head of U.S. trading at Cantor Fitzgerald & Co. in New York. ``There's still a lot of uncertainty and worry about valuations in the financial sector.''
Washington Mutual, Costco
Washington Mutual fell 38 cents to $15.68. The biggest U.S. savings and loan was cut to ``sell'' from ``neutral'' at Bank of America on concern credit quality may deteriorate further and it may have to raise funds. The brokerage also reduced its price estimate on the stock by 46 percent to $13.
Countrywide Financial Corp., the biggest U.S. mortgage company, lost 28 cents to $10.25. American International Group Inc., the largest insurer, slumped $1.55 to $56.66.
Financial companies in the S&P 500 are expected to report a 36 percent average profit drop in the fourth quarter, the worst performance among 10 industries, according to a Dec. 7 Bloomberg survey.
Prices paid to U.S. producers climbed twice as much as economists had forecast in November, pushed up by surging costs for fuel. Excluding food and energy, prices rose the most since February.
Target, the second-largest U.S. discount chain, fell 86 cents to $52.32 and Home Depot, the largest home-improvement retailer, dropped 99 cents to $27.50.
Retail Sales
Retail sales in the U.S. increased twice as much as forecast in November. The 1.2 percent increase, the biggest since May, followed a 0.2 percent gain the prior month, the Commerce Department said. Purchases excluding automobiles jumped 1.8 percent, the most since January 2006.
Costco Wholesale Corp., the largest U.S. chain of wholesale-warehouse stores, fell the most in two weeks on earnings that failed to top analysts' estimates. Costco slid $1.56 to $68.63. Net income was 59 cents a share in the first quarter, matching projections of analysts surveyed by Bloomberg.
Biogen Idec Inc. slumped $17.90, or 24 percent, to $57.98. The maker of drugs for cancer and multiple sclerosis said it will no longer pursue a sale and that its business plan is working. The biotechnology company put itself up for sale in October after billionaire investor Carl Icahn bid $23 billion.
Qualcomm
Qualcomm Inc., the second-biggest maker of chips that run mobile phones, dropped $1.20 to $39.81 after Nokia Oyj won the first round of a patent fight. Administrative Law Judge Paul Luckern in Washington rejected Qualcomm claims that Nokia, the world's biggest maker of mobile phones, infringed patents for a technology that prevents dropped calls. He also said one of the three patents is invalid. The decision is subject to review.
Ciena Corp. fell $5.24, or 12 percent, to $36.88. The maker of network equipment forecast revenue for the current fiscal year will be $935.7 million, less than the average estimate of $949.2 million in a Bloomberg survey of analysts.
Dow Chemical Co. surged $2.97 to $44.72 after the largest U.S. chemical maker and Kuwait's Petrochemical Industries Co. said they will form a joint venture to make plastics and chemicals.
Honeywell International Inc. climbed $2.43, or 4.2 percent, to $60.17, the steepest gain in the Dow average. The world's largest maker of aircraft controls forecast higher 2008 profit as demand for plane parts and overseas sales of thermostats and security systems help overcome a U.S. housing slump.
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