US stocks weakened on Wednesday as ongoing credit market concerns rattled the financial sector. A rise in crude prices and disappointing retail data also dampened investor sentiment.
The Dow dropped 109.51, or 0.94 per cent to 11532.96, while the broader S&P 500 was off 3.76, or 0.29 per cent at 1285.83. The NASDAQ edged 1.99 points, of 0.08 per cent lower to 22428.62.
Financial stocks retreated on fears of further credit losses. Adding to concerns, a Merrill Lynch analyst downgraded many of the top investment banking names, arguing that the credit crunch had worsened.
Among the sector’s Dow components, Bank of America lost 7.3 per cent, Citigroup fell 3.9 per cent and JPMorgan dropped 2.7 per cent. American Express and American International Group shed 3.1 per cent and 3.5 per cent respectively.
The market suffered as anxiety towards financials was coupled with disappointing July retail data. A government report found that retail sales fell 0.1 per cent. Excluding automobiles, July sales rose 0.4 per cent, short the 0.5 per cent up tick many had anticipated.
The retail sector was also undercut by news that Macy’s and Liz Claiborne downgraded their full year earnings forecasts. Both counters said a reduction in consumer spending would continue to push down sales at their stores.
Liz Claiborne shares tumbled 11.6 per cent, but Macy’s managed to gain 1.9 per cent.
J.C. Penney, Target and Wal-Mart fell 1.5 per cent, 2.6 per cent and 1.9 per cent respectively.
Home Depot lost 3.5 per cent after a Standard & Poor's analyst lowered the company’s second quarter earnings forecast, flagging slower same-store sales.
Elsewhere, General Motors fell 7.6 per cent on news that Moody’s had cut its debt rating. Moody’s also maintained its negative outlook on GM debt, which could lead to a further ratings cut in the next year or so.
Ford shed 5.8 per cent even after the automaker’s CEO said it would be able to withstand a downturn in the US economy.
In earnings news, Applied Materials reported a 65 per cent drop in third quarter profit. However, the result was ahead of expectations and the company offered a strong fourth quarter order outlook. The company’s shares rallied 4.7 per cent.
On the downside, Deere & Company shed 3.2 per cent after reporting a lower than expected 7 per cent rise in third quarter profits. Investors were also disappointed with the company’s fourth quarter outlook. Deere’s rival Caterpillar slid 2.8 per cent.
Homebuilder Toll Brothers flagged a sharp 34 per cent drop in revenue for the third quarter. The company said it was uncomfortable providing an earnings outlook due to ongoing fragility and uncertainty in the housing market.
However, investors were bracing themselves for a large slide in third quarter revenues. The company’s shares edged nearly 1 per cent higher.
In M&A activity, CVC Caremark said it was buying Longs Drug Stores for US$2.7 billion cash. CVC slipped 0.1 per cent lower, while its target jumped 30.8 per cent.
Oil producers also closed higher, tracking a rise in crude futures.
NYMEX light crude for September delivery rose US$2.99 to settle at US$116 a barrel after the government's weekly inventory report showed decline in oil and gasoline supplies.
Exxon Mobil and Chevron picked up 1.7 per cent and 3.2 per cent respectively.
Elsewhere, COMEX gold for December delivery rose US$16.90 to US$831.50 an ounce.
UK markets
British stocks retreated on Wednesday as fears over more write downs continued to weigh on banks. A lift in crude prices renewed inflation worries and builders were also a drag on the market.
The FTSE 100 slipped 85.90, or 1.55 per cent to 5448.60.
Banks were the biggest losers following the lead from across the Atlantic where JPMorgan Chase said it had racked up US$1.5 billion of losses so far this quarter on mortgage-linked assets.
Royal Bank of Scotland declined 6.4 per cent after Commonwealth Bank ofAustralia said it was pulling out of talks to buy ABN AmroAustralia.
Worries about asset sales also weighed on life insurer Friends Provident, which fell 5.1 per cent. Merrill Lynch cut its rating to underperform from neutral, citing questions surrounding the company's disposal program. Barclays lost 7.1 per cent.
Real estate stocks lost ground after a flood of downgrades in the sector.
Hammerson, which was trading ex-dividend, fell 9.2 per cent after Lehman Brothers cut forecasts in a negative sector note. Liberty International sank 1.5 per cent as Citi predicted a dividend cut.
British Land dropped 8.7 per cent as its house broker UBS cut forecasts ahead of its results on Thursday.
The Bank of England raised expectations of an interest rate cut possibly before the year-end after it forecast inflation falling below target in two years.
This saw retail and leisure stocks weaken. Enterprise Inns slumped 11.2 per cent, Marks & Spencer lost 10 per cent, Whitbread fell 8.2 per cent, while Tesco and Kingfisher dropped 5 per cent and 10 per cent respectively.
European markets
European stocks felt the heat again on Wednesday as fresh concerns about the impact of the credit crunch on the banking sector hit financial shares. An increase in the price of oil made waves across the entire continent.
Germany’s DAX dropped 163.68, or 2.49 to 6422.19, while France’s CAC 40 fell 115.51, or 2.56 per cent to 4402.97.
UBS tumbled 7.3 per cent on the back of its weaker than expected results reported on Tuesday.
Fortis fell 5.8 per cent and Santander slipped 3.5 per cent after Commonwealth Bank of Australia said it was pulling out of talks to buy ABN Amro Australia.
The pair, along with Royal Bank of Scotland, bought Dutch Bank ABN Amro last year and are in the process of selling off non-core assets, including AAC Capital Partners, ABN’s former private equity business.
Meanwhile, Credit Suisse fell 5.4 per cent, Commerzbank lost 6.9 per cent and Credit Agricole slipped 6.8 per cent.
Insurers also came under pressure. Finland's Sampo lost nearly 7 per cent after the group released weaker than expected second-quarter earnings, making it the biggest percentage decliner within the sector.
Fellow insurer AXA lost 5 per cent and Germany's Allianz was off 3.7 per cent.
The rise in crude prices failed to lift oil companies. Norway’s StatoilHydro slid 2.7 per cent, France’s Total slipped 1.6 per cent and Austria’s OMV dropped 2.5 per cent.
In other news, Tandberg climbed 17.4 per cent after reports the video-conferencing firm had received a US$2 billion private-equity approach.
Japanese markets
Japanese shares fell just over 2 per cent, with a wide range of shares hurt by growing worries about the domestic and global economies. Exporters felt the decline as they were also hit by a firmer Yen.
The Nikkei 225 lost 280.55, or 2.11 per cent to 13023.05.
Exporters, Canon and Sony fell 2.4 per cent and 3 per cent respectively.
Concerns over slowing domestic demand saw Fast Retailing Co shed 3.3 per cent while mobile phone operator Softbank Corp lost 3.6 per cent.
Internet security firm, Trend Micro sank 4.9 per cent after it said operating profit was likely to fall 15 per cent for the July-September quarter, hurt by a stronger yen and increased marketing expenses.
Dentsu joined the trend, losing 4.6 per cent after the advertising company announced a sharp drop in quarterly profit.
Hong Kong markets
Hong Kong shares extended their downward slump for the fourth consecutive session. The slide was led by Chinese banks, after lender ICBC was downgraded by Credit Suisse analysts.
The benchmark Hang Seng index retreated 347.57 points, or 1.61 per cent to close at 21,293.32.
Hong Kong Exchanges & Clearing dropped 3.1 per cent after the bourse operator reported a 6 per cent decline in second quarter earnings.
Financials lost ground, weighed by worries of economic slowdown and inflation fears. China Construction Bank sank 6.1 per cent while ICBC dove 5.4 per cent.
Chinese property developer Country Garden dropped to an all-time low, falling 10.6 per cent on disappointment over its first-half earnings announcement on Tuesday.
China Mobile shed 1.8 per cent, adding to its 5.6 per cent decline this week.
China's largest shipping firm, China Cosco, jumped 6 per cent.
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