U.S. Stocks Fall as S&P 500 Drops a 4th Day, Led by Financials

U.S. stocks extended their weeklong slump as persistent concern about mortgage defaults overshadowed the biggest leveraged buyout in history.

Citigroup Inc. fell the most since July, sending the Standard & Poor's 500 Index to its longest stretch of declines since August. Moody's Corp. and McGraw-Hill Cos. retreated on speculation their bond rating units will lose business as fewer home loans are turned into securities.

Investors are growing increasingly skeptical that lenders to the riskiest borrowers will achieve profit forecasts after more than a dozen closed or were sold in the past three months. Today, shares of 74 of 88 companies included in the S&P 500 financial index declined.

``Whenever you get any problems in the financial sector, it's a concern,'' said Joseph Williams, who helps manage $11 billion at Commerce Trust Co. in Kansas City, Missouri. ``Some of the brokers and banks possibly have more exposure than we perceive. It's something for the market to worry about.''

The S&P 500 slipped 1.82, or 0.1 percent, to 1449.37 for its fourth day of losses. The Dow average dropped 15.22, or 0.1 percent, to 12,632.26, the lowest since Feb. 12. The Nasdaq Composite Index decreased 10.58, or 0.4 percent, to 2504.52.

The declines were limited by expectations that the $45 billion buyout of TXU Corp., the biggest electricity producer in Texas, will spur more takeovers. Investors led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group are acquiring the company.

Weekly Retreat

Stocks retreated last week, pushing the Dow to its worst weekly decline since August, after a government report showed consumer prices rose more than expected, reducing the chances of an interest rate cut. Concern that higher rates and weaker home prices will foster mortgage defaults also aided the selloff.

An S&P 500 sub-index of financial shares slipped 0.8 percent, bringing its four-day retreat to 2.4 percent.

Citigroup, the nation's biggest bank, declined $1.09, or 2 percent, to $52.68.

Moody's, parent of Moody's Investors Service, retreated $2.06 to $65.37, while McGraw-Hill, owner of Standard & Poor's, slipped $1.33 to $65.45. Credit Suisse downgraded Moody's to ``underperform'' from ``neutral'' and lowered McGraw-Hill to ``neutral'' from ``outperform.''

Almost seven stocks fell for every five that advanced on the New York Stock Exchange. Some 1.6 billion shares changed hands on the Big Board, 3.2 percent more than the three-month average.

TXU

Stocks initially rose after TXU agreed to a $45 billion offer from Kohlberg Kravis Roberts & Co. and Texas Pacific Group. Utilities jumped 2.5 percent for the best performance among 10 industry groups in the S&P 500. The Dow Jones Utilities Average rallied 2.6 percent to a record.

TXU, the largest power producer in Texas, advanced $7.91, or 13 percent, to a record $67.93 for the biggest gain in the S&P 500. Exelon Corp., the biggest operator of U.S. nuclear power plants, gained $2.45 to $69.38 as Merrill Lynch & Co. said the utility could be a buyout target.

NRG Energy Inc., owner of six Connecticut power plants, climbed $4.23 to $67.75 after Deutsche Bank AG lifted its price estimate on the stock by 19 percent to $74, citing TXU's buyout.

McDermott International Inc. dropped $1.89 to $49.32. To help gain approval for the takeover, TXU and its buyers agreed to abandon eight of 11 coal-fired generators the company planned to build. TXU said in June that it ordered more than $1 billion of boilers for power plants from McDermott's Babcock & Wilcox unit.

No `Official Word'

McDermott said in a statement that prior to the buyout announcement, TXU gave notice to Babcock & Wilcox to suspend work on five boiler projects. McDermott said it has not received any ``official word'' from TXU today regarding the projects.

Elsewhere, Dow Chemical Co. advanced $1.54 to $44.99. The largest U.S. chemical maker may receive a takeover offer worth as much as $54 billion from private equity investors within the next few weeks, the London-based Sunday Express reported, without saying where it got the information.

``You have a large number of significant companies, it seems like on an almost daily basis, being acquired at premiums,'' said Dean Gulis, who helps manage $2.4 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``That's one of the reasons we've seen such a generally strong market.''

Buyout Firms

Buyout firms have announced almost $50 billion in deals so far this year, excluding today's TXU agreement, helping give the S&P 500 a 2.2 percent lift in 2007. Overall, a record $700 billion of takeovers were announced last year, according to data compiled by Bloomberg.

Transportation companies fell 1.9 percent, the most among 24 industry groups. Analysts at Bear Stearns & Co. downgraded rail companies to ``market weight'' from ``market overweight'' on lower volumes and bad weather that reduced productivity.

Burlington Northern Santa Fe Corp., the second-biggest U.S. railroad, slid $2.21 to $81.70.

Sherwin-Williams Co., the largest U.S. paintmaker, led consumer companies lower.

Sherwin-Williams slid $2.22 to $67.77. The company and other former lead-paint makers must pay costs of cleaning up lead paint at homes, schools and other public buildings in Rhode Island, a judge ruled today.

Judge Michael Silverstein's decision comes after a Rhode Island jury found last February that Sherwin-Williams, along with NL Industries and Millennium Holdings LLC, created a public-health threat through the sale of lead paint linked to brain damage in children. State officials contend that as many as 240,000 homes in the state are coated with lead paint.

Ciena

Ciena Corp. tumbled the most in five weeks after a competing producer of optical-network equipment filed for an initial public offering. Infinera Corp. said it plans to sell as much as $150 million of its shares. Infinera competes with Ciena, which makes computer-networking equipment, said Greg Palmer, head of equity trading at Pacific Crest Securities Inc. in Portland, Oregon.

Ciena dropped $1.16, or 3.6 percent, to $31.34.

Arris Group Inc. slumped $1.38, or 9 percent, to $13.91. The provider of broadband communication networks had its bid for Norway's Tandberg Television ASA topped by Ericsson AB. Arris is reviewing the new offer and won't comment before the evaluation is completed, spokesman Jim Bauer said.

Temple-Inland Inc. surged $7.06 to $62.01. The company, pressured by billionaire investor Carl Icahn, will spin off its real-estate and financial-services units and sell timberlands to focus on packaging and building products.

Oil Advances

Energy shares rose as oil prices advanced for a fourth day to the highest close this year. Chevron Corp., the second- biggest U.S. oil company, gained 34 cents to $71.41.

Crude oil futures increased 0.4 percent to $61.39 a barrel in New York on speculation that an Energy Department report will show U.S. fuel inventories declined.

In other markets, Treasuries rose on expectations weakness in housing will slow the economy and the dollar fell against the yen.

S&P 500 shares, called Spiders, lost 13 cents to $145.17. Nasdaq-100 Index tracking shares, known by their QQQQ symbol, fell 22 cents to $45.04.

S&P 500 futures expiring in March retreated 1.20 to 1452.60 on the Chicago Mercantile Exchange. Nasdaq-100 futures slid 7.25 to 1837.75.

The Russell 2000 Index, a benchmark for companies with a median market value of $689 million, slipped 0.4 percent to 823.69. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, lost 0.2 percent to 14,703.66. Based on its retreat, the value of stocks decreased by $32.7 billion.
Arris Group Inc. (ARRS US)
Burlington Northern Santa Fe Corp. (BNI US)
Chevron Corp. (CVX US)
Ciena Corp. (CIEN US)
Citigroup Inc. (C US)
Dow Chemical Co. (DOW US)
Exelon Corp. (EXC US)
McDermott International Inc. (MDR US)
McGraw-Hill Cos Inc. (MHP US)
Moody's Corp. (MCO US)
NRG Energy Inc. (NRG US)
Sherwin-Williams Co. (SHW US)
Temple-Inland Inc. (TIN US)
TXU Corp. (TXU US)

source:www.bloomberg.com