Earnings misses, subprime woes punish Wall Street

NEW YORK (Reuters) - U.S. stocks tumbled on Friday, battered by disappointing results from such bellwethers as Caterpillar and Google, and more signals that fallout from the risky subprime mortgage market may spread.

The day's losses were big enough to drag the major indexes into negative territory for the week, snapping a three week streak of gains for the Dow, the S&P 500 and the Nasdaq.

Caterpillar Inc. (CAT.N) said quarterly earnings fell in part due to a sharp drop in sales of North American construction equipment, evidence that the slowdown in housing may be restraining economic growth. For details, see ID:nL20191126. Its stock slid 4.4 percent and helped pull the Dow back below 14,000 just a day after its first close above the milestone.

Web media company Google Inc. (GOOG.O) also reported earnings that missed expectations, hurt by increased hiring and a jump in operating expenses.

"Expectations for Google and Caterpillar were very high, and there was very little room for disappointment," said Tim Woolston, portfolio manager at Boston Advisors Inc.

"And on days when investors choose to focus on subprime, that creates a negative overhang. No one really knows the extent to which it could impact the economy," he said.

The Dow Jones industrial average .DJI fell 149.33 points, or 1.07 percent, to end at 13,851.08. The Standard & Poor's 500 Index .SPX lost 18.98 points, or 1.22 percent, to finish at 1,534.10. The Nasdaq Composite Index .IXIC dropped 32.44 points, or 1.19 percent, to close at 2,687.60.

The Dow ended the week down 0.4 percent, the S&P fell 1.2 percent, and the Nasdaq skidded 0.7 percent.

July options expiration was another factor putting pressure on the market, analysts and traders said.

Shares of Caterpillar -- one of the biggest contributors to the Dow's climb to 14,000 -- dropped $3.78 to $83.20 on the New York Stock Exchange, making it the top drag on the Dow industrials.

Google's stock was the top drag on both the S&P 500 and the Nasdaq, sliding 5.2 percent, or $28.47, to $520.12. Shares of fellow tech bellwether Microsoft, the world's largest software maker, dropped 1.1 percent to $31.16 after its higher earnings were overshadowed by personal computer sales, which did not pay off as much as some analysts had hoped.

Google and Microsoft, which released results after Thursday's closing bell, dampened enthusiasm for technology stocks a day after International Business Machines Corp. (IBM.N) led both the Dow and the S&P 500 to record closing highs.

SUBPRIME ANGST HITS BANKS AND BUILDERS

The subprime crisis took another bite out of financials, as a drop in junk bonds signaled a fresh wave of worry about the state of the mortgage market. An S&P index of financial stocks .GSPF skidded 1.8 percent, and logged its worst week since the February sell-off.

Remarks by St. Louis Federal Reserve Bank President William Poole about the broader housing market added to concerns. Poole said inventories of unsold homes remain bloated and will continue to be a drag on U.S. growth.

And JPMorgan Chase & Co.(JPM.N) said many U.S. homeowners will have more problems as troubled loans reset at higher rates and it becomes more difficult to refinance over the next 12 months. JPMorgan's stock, one of the 30 that make up the Dow average, dropped 2.2 percent to $47.56.

Citigroup Inc. (C.N), the largest U.S. bank, initially rose after it reported a higher-than-expected quarterly profit, but later its stock fell 0.8 percent to close at $50.73 on the NYSE as subprime worries took their toll.

Subprime lender NovaStar Financial Corp. NFI.N lost 9.5 percent to end at $5.14 on the Big Board.

Shares of home builders fell broadly, as investors worried about the outlook for the housing market. Shares of Centex CTX.N notched their biggest decline in four months, down 3.3 percent at $42 on the NYSE, while Pulte Homes (PHM.N) fell 1.6 percent to $22.04.

The Dow Jones U.S. Home Construction Index .DJUSHB sank 2.4 percent.

Trading was active on the NYSE, with about 2.00 billion shares changing hands, above last year's estimated daily average of 1,84 billion, while on Nasdaq, about 2.38 billion shares traded, also trouncing last year's daily average of 2.02 billion.

Declining stocks outnumbered advancing ones by a ratio of about 3 to 1 on both the NYSE and on Nasdaq.