S&P erases gains for year as mortgage lender sinks
NEW YORK (Reuters) - U.S. stocks fell sharply on Wednesday, wiping out the year's gains for the benchmark S&P 500, after Countrywide Financial shares plunged on a brokerage downgrade and rumors it was having trouble raising money.
The clouds enveloping the No. 1 U.S. mortgage lender, which had its biggest one-day percentage drop since the 1987 stock market crash, exacerbated concerns about the health of the mortgage lending business and its effect on wider credit markets.
After a fleeting rally, financial shares helped push the market sharply lower in the last hour of trading. Energy companies' stocks also dropped after striking early gains.
Shares of Countrywide fell 13 percent to close at $21.29 on rumors the company was having difficulty raising money in the commercial paper market. Countrywide officials were not immediately available for comment.
Earlier, Merrill Lynch recommended its clients sell Countrywide stock, saying the mortgage lender could face bankruptcy if liquidity worsens. Countrywide's stock sank to a session low at $19.25 -- a drop of 21.3 percent for the day.
"The liquidity crisis is now spilling over into the commercial paper market and that has impacted Countrywide today," said Craig Hester, chief executive officer of Hester Capital Management, in Austin, Texas.
"The fear is that this problem that originated in subprime is like a growing cancer. The uncertainty of not knowing where the next problem is going to emerge is just too much for investors to handle."
The Dow Jones industrial average lost 167.45 points, or 1.29 percent, to end at 12,861.47 -- or 8 percent below its record close. Wednesday marked the Dow's first close below 13,000 since April 24.
The Nasdaq Composite Index dropped 40.29 points, or 1.61 percent, to close at 2,458.83.
The Standard & Poor's 500 Index fell 19.84 points, or 1.39 percent, to finish at 1,406.70. The S&P is now 9.4 percent below its record high close less than a month ago and down 0.82 percent for the year.
And the S&P could fall further. According to the Dudack Research Group in New York technical indicators are not yet confirming a low in the S&P, with the next level for support for the index in the range of 1,400 to 1,380.
Some positive news came after the bell from Amgen. The biotechnology company's shares rose 1.8 percent to $51.50 in extended hours trading after it said it plans to cut its work force by up to 14 percent. Amgen ended Nasdaq trading at $50.59, down 1.4 percent.
BROKERS AND BUILDERS FALL
During the regular session, financial shares led an early rally, which analysts and traders attributed to investors reversing bets that the market would fall and bargain hunters picking up beaten-down shares.
But the gains were quickly shot down by fresh negative headlines and by the end of the session, the investment banking and brokerage sector was dragging on the S&P 500. Continued...
