US stocks retreated on Tuesday with most of the major sector groups closing in the red. Resurgent credit market concerns overshadowed hopes that ongoing weakness in crude prices would drive business and consumer spending.
The Dow fell 139.88, or 1.19 per cent to 11642.47, while the S&P 500 lost 15.73, or 1.21 per cent to 1289.59. The NASDAQ closed 9.43, or 0.38 per cent lower 2430.61.
A number of high profile financials warned the market about the fallout from the credit crunch, reminding investors that the worst might not be behind them.
In a trading update, JPMorgan said conditions continued to deteriorate in the third quarter. The company said it had written down US$1.5 billion during the quarter. JPMorgan shares slumped 9.5 per cent.
Echoing last week’s announcements by Citigroup and Merrill Lynch, Morgan Stanley said it would buy back US$4.5 billion in auction rate securities.
The announcement was in response to news that the attorney general would include Morgan Stanley in an investigation of the sale of these securities to unwitting clients.
Making matters worse, ratings agency Moody’s cut the firm’s debt rating.
Morgan Stanley shares were down 6.4 per cent, while Citigroup and Merrill Lynch were down 6.5 per cent and 4.8 per cent.
Wachovia tumbled 12.1 per cent after revising its second quarter loss to US$9.1 billion from US$8.9 billion. The bank, which is also under the magnifying glass for selling auction-rate securities, said it was cutting 600 more jobs.
Goldman Sachs dropped 6 per cent after suffering a series of ratings downgrades or price target cuts.
Adding to sector woes, UBS reported its fourth straight quarter loss and said it would separate its investment banking unit from the wealth management arm. UBS shares shed 6.4 per cent in US trade.
Bank of America was off 6.7 per cent, American International Group lost 6.6 per cent and American Express dropped 2.9 per cent.
Fellow Dow component McDonald's fell 3.1 per cent after UBS cut its rating on the fast food giant, citing flatter restaurant margins and decline in currency gains.
NYMEX light crude for September delivery fell US$1.44 to settle at US$113.01 a barrel.
Oil prices, which had driven market activity in recent sessions, took the back seat to concerns about the financial sector. However, there were a few notable beneficiaries from ongoing weakness in energy prices.
U.S. Airways jumped 11.9 per cent, while UAL Corporation added 8.4 per cent.
JPMorgan upgraded a number of high profile airline plays, citing trimmed flight schedules, revenues from baggage fees and a sharp drop in crude prices.
Elsewhere, COMEX gold for December delivery fell US$10.30 to settle at US$818 an ounce.
In economic news, a government report showed the US deficit unexpectedly narrowed in June as an increase in exports offset higher oil import prices.
A separate report showed that the July federal budget deficit jumped to US$102.8 billion, topping forecasts and nearly triple the US$36.4 billion deficit from July 2007.
UKmarkets
British stocks edged slightly lower on Tuesday after mining companies retreated on lower metal prices. The market decline was limited by further merger speculation in the media sector and rising oil plays.
The FTSE 100 slipped 7.30, or 0.13 per cent to 5534.50.
Topping the FTSE 100 gainers' list, British free-to-air broadcaster ITV advanced 6.3 per cent to reach its highest level in more than six weeks as traders cited continued talk of a possible bid from TV producer Endemol.
InterContinental Hotels put on 3 per cent after its first-half earnings proved better than feared.
However, quarterly earnings from Thomson Reuters came in at the lower end of forecasts and flagged a sharp slowdown in revenue from equities and fixed income over the second half. Shares of the news agency closed down 4.9 per cent.
With commodities prices in retreat, Kazakhmys shares dropped 5.5 per cent and Xstrata fell 2.3 per cent. Aussies BHP Billiton and Rio Tinto were down 1.3 per cent and 1.2 per cent respectively.
Oil companies provided support, with BP up 1.9 per cent and Shell gaining 1.8 per cent.
Meanwhile, financial stocks were out of favour after JPMorgan flagged a further $1.5 billion hit on mortgage-backed assets. Royal Bank of Scotland and HBOS were down 1.4 per cent, while Barclays and Lloyds TSB were off around 0.4 per cent.
Standard Chartered shed 6.8 per cent after Citi downgraded the Asia-focused lender to sell from hold and cut its price target.
European markets
European shares backtracked on Tuesday as financials retreated following further write downs from the third-largest US bank, JPMorgan. Car makers rallied after the euro hit its lowest point in six months during the session.
Germany’s DAX dipped 23.76, or 0.36 to 6585.87, while France’s CAC 40 dropped 20.01, or 0.44 per cent to 4518.48.
France’s BNP Paribas and Societe Generale fell 3.7 per cent and 2.7 per cent respectively. Germany’s Deutsche Bank slipped 0.4 per cent.
UBS fell 2.4 per cent after reporting worse than expected second-quarter loss. The Swiss bank said it would it would split off its investment banking unit, which analysts said could pave the way for a sale of the battered business. Local rival Credit Suisse lost 1.3 per cent.
Bucking the trend, Germany’s Aareal Bank climbed 1.1 per cent after reporting better than expected second-quarter profit.
Carmakers with strong US export business made gains on the back of the rising US dollar. BMW added 1.5 per cent, Daimler was up 1.4 per cent and Fiat gained 1.6 per cent.
Biotech Addex climbed 9.3 per cent on the back of bid talk from a Swiss rival.
Drug distributor, Celesio leapt 11.1 per cent despite a profit warning as investors hoped for a smooth recovery.
Japanese markets
Concern about slowing economic growth weighed on Japanese stocks on Tuesday, forcing the market down almost 1 per cent. Steel producers and exporters took a hit after metals prices fell on worries of reduced demand.
The Nikkei 225 lost 127.31, or 0.95 per cent to 13303.60.
JFE Holdings slumped 6.1 per cent, Sumitomo Metal Mining fell 3.1 per cent, Nippon Steel shed 4.6 per cent and Kobe Steel slipped 2.6 per cent as investors pulled out of the asset class.
Automakers including Toyota, Nissan and Mazda fell 0.2 per cent, 2.3 per cent and 3.1 per cent. Exporters were also lower with Sony down 0.9 per cent, Toshiba off 0.7 per cent and Fujitsu falling 2.8 per cent.
Meanwhile, Honda gained 2.8 per cent, the top positive contributor to the Nikkei 225, while Canon added 0.8 per cent.
Financials also bucked the broader trend. Mizuho Financial Group added 1.5 per cent and Mitsubishi UFJ Financial Group edged 0.2 per cent higher.
While crude continued its downward run, Japan Airlines gained 3.7 per cent.
Hong Kongmarkets
Hong Kong shares lost ground on Tuesday, its third straight decline, as China Mobile and commodities stocks turned sour. The downward run had investors pessimistic, pulling the main index off its early highs.
The benchmark Hang Seng index retreated 218.450, or 1 per cent to close at 21640.89.
Zijin Mining Group, owner of China's largest gold mine, and Jiangxi Copper declined as metals slumped to their lowest since December 2007.
Asia’s largest wireless carrier China Mobile recorded its steepest fall in two and a half months, down 4.6 per cent. Investors worried about the company's earnings growth amid the increasingly sluggish economic growth in China and regulatory uncertainties.
In other news, the world's biggest contract manufacturer of mobile phones Foxconn International Holdings rose more than 12 per cent following its 9.5 per cent improvement on Monday after Merrill Lynch upgraded its rating on the stock.
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