(Updates to early morning)
By Ellis Mnyandu
NEW YORK, July 10 U.S. stocks fell in choppy
trading on Thursday as worry over whether Freddie Mac FRE.N
and Fannie Mae FNM.N can obtain the capital they need
overshadowed news of a planned $18.8 billion acquisition in the
Federal Reserve Chairman Ben Bernanke appeared set to
reassure investors. A source familiar with his testimony before
a congressional committee said the Fed chief would say the
government is focused on helping the financial system regain
Even so, investors were cautious as capital-raising by the
two government-chartered housing finance companies will dilute
the value of current share-holdings. Freddie Mac fell more than
25 percent to $7.59 on the New York Stock Exchange, while
shares of Fannie Mae tumbled 14.8 percent to $13.06.
"These dilutive type deals these companies are putting
together are just increasing that downward spiral within the
financials, not even to mention the confidence in the whole
system," said Alan Lancz, president of Alan B. Lancz &
Associates Inc in Toledo, Ohio.
The Dow Jones industrial average .DJI fell 20.19 points,
or 0.18 percent, to 11,127.25. The Standard & Poor's 500 Index
.SPX declined 4.65 points, or 0.37 percent, at 1,240.04. The
Nasdaq Composite Index .IXIC shed 0.37 point, or 0.02
percent, to 2,234.52.
In M&A news, Dow Chemical (DOW.N) said it would acquire
Rohm and Haas ROH.N for $18.8 billion, a deal that investors
took as signaling value in the stock market and evidence that
the credit crisis has not totally derailed deal-making.
But investors' attention focused on the outlook for Fannie
Mae and Freddie Mac, publicly traded companies that serve as an
important pillar of the U.S. housing market.
Former St. Louis Federal Reserve Bank President William
Poole said in an interview with Bloomberg that Fannie Mae and
Freddie Mac are insolvent and may need a government bailout.
For details, see [ID:nBNG63700]
The slide in their shares contributed to the broader market
sliding into its first bear market since 2002 on Wednesday when
the S&P 500 ended 20 percent below its October record close.
(Editing by Kenneth Barry)