Stocks slip after two-day rally

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NEW YORK -- Stocks fell Thursday as investors digested a mix of corporate and economic news, including weaker-than-expected earnings from Sears Holdings Corp. and a strong reading on U.S. economic growth in the third quarter.

Some pushback was expected after stocks on Tuesday and Wednesday had their biggest two-day rally in five years amid growing hopes that the worst of the credit crisis might be over. But Thursday's news injected a bit of uncertainty back into the market.

That was reinforced when the Labor Department said the number of people seeking unemployment benefits last week jumped sharply, suggesting that the labor market is softening. The weekly readings can, however, be volatile.

Sears, parent of its namesake department store chain and Kmart, said profits plunged to a penny per share from $1.27 per share a year ago due to lower sales and clearance markdowns.

A report showing economic growth in the third quarter was much faster than the government originally thought perhaps helped limit stocks' declines. The Commerce Department revised its estimate of gross domestic product up a full percentage point to 4.9%, topping analysts' consensus forecast for a 4.8% rise.

But most analysts believe the economy has cooled in the fourth quarter, putting consumer spending -- the main engine of growth -- at risk.

Another reading showed sales of new homes rose moderately in October as prices fell sharply. However, the Commerce Department report also revised prior sales figures downward.

In midmorning trading, the Dow Jones industrial average fell 63.89, or 0.48%, to 13,225.56.

Broader stock indicators also fell. The Standard & Poor's 500 index dipped 6.08, or 0.41%, to 1,462.94, and the Nasdaq composite index fell 6.49, or 0.24%, to 2,656.42.

Bond prices rose, with the yield on the benchmark 10-year Treasury note falling to 3.96% from 4.04% late Wednesday. Bond prices and yields move in opposite directions. The dollar rose against other major currencies, while gold prices fell.

In the latest such action, E-Trade Financial Corp. said on Thursday that Citadel Investment Group will provide $2.5 billion in cash to shore up its balance sheet. It also said Chief Executive Mitchell H. Caplan has resigned.

E-Trade, which holds billions in risky mortgage debt, said it will sell its entire portfolio of asset-backed securities to Citadel for $800 million and book a $2.2 billion charge on the sale. E-Trade jumped 51 cents, or 9.7%, to $5.79.

In other corporate news, Sears' results came up far short of Wall Street's expectations; analysts polled by Thomson Financial had forecast a profit of 50 cents per share. The stock fell $15.88, or 13.7%, to $100.46.

Aeropostale Inc. fell $2.11, or 7.5%, to $25.90 after the retailer's third-quarter sales came in below analysts' expectations and a SunTrust Robinson Humphrey analyst downgraded the stock, citing its price. Aeropostale said its quarterly profit rose 11%.

Investors sent stocks sharply higher in recent days in part because a Federal Reserve official suggested another interest rate cut could be in store. Wall Street also has been calmed by evidence that companies hurt by subprime problems have found financial backers to help stem the damage.

The stock market's two-day rebound followed Monday's triple-digit drop in the Dow, which pushed the index to a level 10% off its October high -- the measure of a downward correction. But while the advance was impressive, Wall Street's performance since the summer has been highly erratic, with many triple-digit swings, and there were few if any predictions that stocks were now on a solidly upward path.

Oil prices spiked after a fire broke out late Wednesday at an Enbridge Energy pipeline carrying crude from Canada to the Midwest. The flow was partially restored Thursday.

A barrel of light, sweet crude rose $1.32 to $91.94 on the New York Mercantile Exchange, after climbing as high as $95.17 earlier in electronic activity. The gains follow a two-day drop of more than $7 a barrel.

Declining issues outnumbered advancers by about 9 to 5 on the New York Stock Exchange, where volume came to 116.6 million shares.

The Russell 2000 index of smaller companies fell 1.40, or 0.18%, to 768.64.

Overseas stock markets were mixed. Britain's FTSE 100 fell 1.60%; Germany's DAX index rose 0.24% and France's CAC-40 rose 0.32%. In Asia, Japan's Nikkei stock average closed up 2.38%. Hong Kong's Hang Seng index rose 4.06%.
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