Stocks fall on downgrade of Citigroup

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NEW YORK -- Wall Street resumed its slide Monday as Wall Street absorbed a gloomy outlook for the banking sector as well as bleak news from the National Association of Homebuilders. The major stock market indexes each fell more than 1.5%, with the Dow Jones industrial average giving up more than 200 points.

Concerns about the banking sector dominated the session. Goldman Sachs Group Inc.'s downgrade of large banks, and its estimate that Citigroup Inc. would have to write down $15 billion due to its exposure to risky debt over the next two quarters unnerved Wall Street.

Other sectors suffered big hits during the session, including airlines and automakers.

Housing stocks also suffered. The worry on Wall Street is that the housing market is getting so weak it will crimp consumer spending, which until now has helped keep the economy afloat. Ahead of the holiday shopping season, any signs that Americans are pulling back could prevent a December rally.

The NAHB's November housing forecast remained unchanged at its lowest-ever level even after the October figure was revised to 19 from 18. Economists polled by Thomson/IFR had expected the index would come in at 18. The survey began in 1985.

"I think that a lot of folks are digesting the news from last week and they're worried about the economy and the ability to grow earnings at the larger companies in America," said Rob Lutts, chief investment officer at Cabot Money Management Inc. in Salem, Mass.

According to preliminary calculations, the Dow industrials fell 218.35, or 1.66%, to 12,958.44.

Broader stock indicators also declined. The S&P 500 index fell 25.47, or 1.75%, to 1,433.27, and the Nasdaq composite index fell 43.86, or 1.66%, to 2,593.38.

The Russell 2000 index of smaller companies fell 19.15, or 2.49%, to 750.35. The pullback left the Russell firmly in negative territory for the year, with a decline of 4.74%. Investors often view smaller companies as more likely to be hit hard in a slowing economy because they can't as easily get by on thin profit margins as some big companies with big overseas operations.

With Monday's decline, stocks have seen losses in seven of the past eight sessions. Last week, stock finished higher after a string of volatile sessions. The Dow ended up 1.03% for the week, while the S&P 500 index ended up 0.35%, and the Nasdaq finished up 0.35%.

Government bond prices rose sharply Monday as investors sought safety. The yield on the 10-year Treasury note, which moves opposite its price, fell to 4.08% from 4.15% late Friday. The 10-year note hasn't gone below the 4.1% level since September 2005.

The dollar fell against other major currencies, while gold fell.

Crude oil futures for January delivery rose 80 cents to settle at $94.64 per barrel on the New York Mercantile Exchange.

John Merrill, chief investment officer at Tanglewood Capital Management in Houston, contends investors are still grappling with the scope of the writedowns related to the housing market and related ramifications of a housing slowdown, such a more cautious consumer.

"Certainly in the financial sector the concerns seem to be never-ending. The potential for write-offs seems to keep growing," he said. "This is having to settle in and the process of settling in means you become more aware of how more meaningful and how restricting these writedowns are."

One big area of concern for investors was again Citigroup, which said earlier this month it would likely write down $8 billion to $11 billion in the fourth quarter. The bank fell $2, or 5.9%, to $32 after the Goldman downgrade to a "sell" rating.

Lowe's Cos. posted a 10% decline in third-quarter profit Monday, slightly better than expected. But the home improvement retailer lowered its forecast in anticipation of further deterioration in housing. Lowe's fell $1.89, or 7.6%, to $23.12.

Celgene Corp.'s announcement late Sunday that it agreed to buy Pharmion Corp. for $72 a share in a cash-and-stock deal worth $2.9 billion failed to bring much enthusiasm to Wall Street. Celgene fell 90 cents to $64, while Pharmion jumped $15.84, or 32%, to $65.12.

Meanwhile, other sectors that could be bruised by an economic slowdown fell Monday. Delta Air Lines Inc. fell 96 cents, or 4.8%, to $19.01, while Continental Airlines Inc. fell $1.76, or 6%, to $27.82.

Among homebuilders, Lennar Corp. fell $1.67, or 8.7%, to $17.57 and hit a fresh 52-week low of $17.54. Its previous low was $18.90. Pulte Homes Inc. fell $1.04, or 8.1%, to $11.80. It likewise sank to a fresh 52-week low of $11.76; the previous low was $12.15.

Declining issues outnumbered advancers by 5 to 1 on the New York Stock Exchange, where volume came to 1.68 billion shares, compared with 1.77 billion traded Friday.

Stock markets overseas also slumped. In European trading, Britain's FTSE 100 closed down 2.71%, Germany's DAX index fell 1.32%, and France's CAC-40 slid 1.65%. In Asian trading, Japan's Nikkei stock average fell 0.74%, while Hong Kong's Hang Seng index decreased 0.56%.
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