Wall Street hurt by mortgage worries

NEW YORK Mon Mar 5, 2007 5:26pm EST

1 of 3. Traders work on the floor of the New York Stock Exchange in New York March 5, 2007.

Credit: Reuters/Eric Thayer

NEW YORK (Reuters) - U.S. stocks slid on Monday as a worldwide flight from riskier assets moved into a second week, fed in part by heightened concerns about the flagging health of the subprime mortgage market.

Lenders to home buyers with poor credit histories were the session's standout laggards, led by a stunning 70 percent drop in shares of New Century Financial on fears it could go bankrupt. That spread across the sector, and others sank as well. The stock of Accredited Home Lenders fell 26 percent and was the No. 2 percentage loser on Nasdaq.

For much of the session, it appeared as if U.S. large-cap stocks, at least, would dodge the global swoon in equities that has chopped nearly $2 trillion off the value of stocks worldwide in the past week. But investors capitulated in the last half hour of trading, as traders said the benchmark S&P 500 index fell below a key technical support level.

"There's been a change in psychology and there's been a change in risk appetite among investors, and we can't expect the bottom after two weeks," said Phil Orlando, chief portfolio manager at Federated Investors in New York.

The Dow Jones industrial average fell 63.69 points, or 0.3 percent, to end at 12,050.41. The Standard & Poor's 500 Index

slid 13.05 points, or 0.94 percent, to finish at 1,374.12. The Nasdaq Composite Index dropped 27.32 points, or 1.15 percent, to close at 2,340.68.

Decliners outnumbered advancers by a ratio of more than 4 to 1 on both the NYSE and the Nasdaq.

The Dow's losses were muted compared with the rest of the market. Some investors ventured back into equities by buying consumer staples and health-care stocks, which are often seen as safer bets in times of turmoil.

Shares of Coca-Cola Co. were among the top positive influences on the Dow, rising 0.9 percent, or 40 cents, to $46.29.

Large-cap technology stocks, seen likely to have strong earnings growth, also rose. Shares of Apple Inc. rose 1.1 percent, or 91 cents, to $86.32, and were the top positive influence on the Nasdaq.

But that was offset by a broad decline among subprime mortgage lenders as the crisis in the sector escalated. New Century shares plunged 68.9 percent, or $10.09, to $4.56 and topped the Big Board's list of percentage decliners amid regulatory examinations into the company's accounting errors and stock trading.

Shares of Fremont General Corp., the second-largest independent subprime lender, slid 33 percent to $5.84 on the

NYSE.

Investors were also still reeling from last week's sell-off.

The yen strengthened against the dollar for the third consecutive session, prompting further worries about the unwinding of the popular carry trades, in which investors borrow in low-yielding currencies and use the proceeds to invest in markets with higher returns. Late Monday in New York, the dollar was down 1.1 percent against the yen at 115.58 yen.

Bonds did not benefit from the stock market's pain. The 10-year U.S. Treasury note dipped 1/32 to a price of 100-31/32, yielding 4.5048 percent.

In spite of Monday's lower finish, U.S. stocks performed relatively better than equity markets overseas. Tokyo's Nikkei average fell 3.34 percent, marking its biggest one-day tumble in nine months, while the FTSEurofirst 300 ended down 1.2 percent.

In U.S. economic news, the Institute for Supply Management's February service sector index was below expectations and down from the January reading, but it still showed further growth in services, the largest segment of the U.S. economy.

Volume was heavy on the NYSE, where about 2.00 billion shares changed hands, above last year's estimated daily average volume of 1.84 billion. On the Nasdaq, about 2.33 billion shares were traded, above last year's daily average of 2.02 billion.

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