IPOs face frosty reception after market tumble

The Wall Street sign is seen in front of the New York Stock Exchange January 22, 2008. Investors retreated from the market for new U.S. stock issues to less risky bets, analysts said on Tuesday.

NEW YORK (Reuters) - Investors retreated from the market for new U.S. stock issues to less risky bets, analysts said on Tuesday.

"IPOs are financially unseasoned companies in the marketplace and investors can't be taking leaps of faith when their core investments are hemorrhaging," said David Menlow, president of IPOfinancial.com.

Initial public offerings were already in a slump. In the last two months of 2007, some 21 companies pulled their IPOs.

So far this year, seven companies that had planned to tap investors for up to $2.8 billion with initial public offerings on either the Nasdaq Stock Market (NDAQ.O) or NYSE Euronext's New York Stock Exchange (NYX.N) have shelved their plans, according to data tracker Dealogic.

That is eight times the value of deals that had been withdrawn or postponed during the same period last year, when only two deals worth a total of $300 million were scuppered.

"What we have found is that a slowing economy, declining corporate earnings and falling equity markets are all correlated with reductions in IPO volume and that is not good news for Wall Street," said Sanford Bernstein analyst Brad Hintz.

The Federal Reserve's biggest interest rate cut in more than two decades cushioned a plunge in the U.S. stock market on Tuesday, when the Dow Jones industrial average .DJI closed below the 12,000 level for the first time since November 2006.

IPOfinancial's Menlow said that investors will pull their purse strings tighter, and wallets will only open for companies with a record of strong financial performance and growth prospects.

"Any IPO that comes into the marketplace now is going to have to be of increasing quality to get out the door, but even they are going to be met with a chilly reception," said Menlow, adding that some companies may have to entice investors with a discounted price.

Despite the chill, some companies are betting that investors will have left the IPO window open a crack. Three initial public offerings are in the queue to test investor appetite later this week, and another 95 have filed with U.S. regulators to publicly float their shares in the coming months, according to Dealogic.