NEW YORK (Reuters) - U.S. stocks fell on Monday after fresh data pointed to a weakening manufacturing sector and uncertainty surrounded emerging plans to shore up the mortgage market.
Industrial companies dragged the market lower after the Institute for Supply Management said its index showed factory activity in November fell to its lowest since January, driving down shares of bellwethers such as General Electric (GE.N).
Investors had a mixed reaction to a U.S. government proposal to stem mortgage defaults by freezing interest rates on adjustable rate mortgages made to subprime borrowers, with some seeing the plan as the first step in staunching the housing crisis while others said the plan raised more questions than it answered.
“When people see the government getting involved in another program that has good intentions, people tend to get very skeptical,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
“Firstly, how is this plan going to be taken advantage of by people who don’t have a legitimate call on that help and secondly, when is the government going to step out of their temporary role, if ever?”
The Dow Jones industrial average .DJI fell 57.15 points, or 0.43 percent, to end at 13,314.57. The Standard & Poor's 500 Index .SPX dropped 8.72 points, or 0.59 percent, to close at 1,472.42. The Nasdaq Composite Index .IXIC dropped 23.83 points, or 0.90 percent, to finish at 2,637.13.
Treasury Secretary Henry Paulson said his department was close to working out a plan with the mortgage industry to move many troubled subprime borrowers into more sustainable home loans.
Even so, concerns about the economy’s health weighed on equities. GE shares were the top drag on both the Dow and the S&P 500, finishing down 3.6 percent at $36.93 on the New York Stock Exchange.
Both automakers reported November sales on Monday that traders said suggested a weakening consumer. GM shares dropped 4.1 percent to $28.61 on the NYSE, while Ford shares slid 3.5 percent to $7.25.
Financials also weighed on the broader market after Deutsche Bank cut its fourth-quarter and 2008 profit estimates on the nation’s top five investment banks, including Bear Stearns BSC.N, whose stock dropped 1.3 percent to end at $98.40 on the NYSE.
Shares of Lehman Brothers LEH.N fell 2 percent to $61.38, while shares of Morgan Stanley (MS.N) declined 0.8 percent to $52.28. The S&P financial index .GSPF lost 1.2 percent.
Credit Suisses widened its estimate of Bear Stearns’ fourth-quarter loss, citing incremental weakness in the capital markets.
The nervousness “in the financials is going to continue for some time to come. That’s not going to change, but what’s important is in that space, we’re seeing some meaningful pricing being put in place,” Kenny said.
Shares of American International Group Inc (AIG.N) led financial stocks lower in both the Dow and the S&P 500, with the shares of the world’s largest insurer by market value falling 2.1 percent to $56.90 on the NYSE.
Shares of Fannie Mae FNM.N, the top U.S. housing finance source, slid 5.7 percent to $36.25 on the NYSE after Goldman Sachs cut its price target on the stock.
On the Nasdaq, Research in Motion RIM.TORIMM.O was the top drag, down 8 percent at $104.75 after Morgan Keegan cut its rating on the BlackBerry maker’s stock. It was the biggest drag on the Nasdaq 100 .NDX.
But shares of home builders were among advancers, helping the Dow Jones home construction index .DJUSHB ending up 1.6 percent. Shares of Centex Corp CTX.N, the fourth-largest U.S. home builder, jumped 4.8 percent to $21.85 on the NYSE, while shares of Lennar Corp (LEN.N) , the No. 2 U.S. home builder, climbed 5.7 percent to $16.74.
Volume was modest on the NYSE, where about 1.33 billion shares changed hands, below last year’s estimated daily average of 1.84 billion. On Nasdaq, about 2.00 billion shares traded, close to last year’s daily average of 2.02 billion.
Decliners outnumbered advancers on the NYSE by a ratio of about 19 to 14, while on the Nasdaq, two stocks fell for every one that rose.
Editing by Jan Paschal