US stocks retreated for the second straight session on higher crude prices, disappointing housing market data and an unexpected spike in inflation. Lacklustre earnings from key retailers also dampened sentiment.

A government report found that the Producer Price Index (PPI), a measure of wholesale inflation, jumped 1.2 per cent in July. The reading was well ahead of economists' expectations.

Core PPI, which removes volatile food and energy price, also topped expectations at 0.7 per cent.

Adding to anxiety about the economy, both July housing starts and building permits fell to their lowest levels since 1991.

Looking to equity markets, the Dow fell 130.84, or 1.14 per cent to 11348.55, while the broader S&P 500 was off 11.91, or 0.93 per cent to 1266.69. The NASDAQ closed 32.62, or 1.35 per cent lower at 2348.36.

Home Depot reported a 24 per cent slump in quarterly profits, citing weakness in the home improvement and housing markets. The US$1.2 billion result was still ahead of expectations but the retailer’s shares shed 3.7 per cent.

Discount retailer Target edged 0.7 per cent lower after posting a 7.6 per cent decline in second quarter profits and offering a cautious outlook for the third quarter.

Luxury department store operator Saks tumbled 8.3 per cent after it reported a worse than expected quarterly loss. The company’s net loss ballooned to US$31.7 million from US$24.6 million a year ago.

Meanwhile, Staples shares gave up 4.2 per cent after the company warned that its second quarter result would be weaker than anticipated.

Others in the sector also took a hit with Wal-Mart down 1.1 per cent, Costco slipping 1.4 per cent and Sears dropping 2.9 per cent.

Financial stocks also weighed on Wall Street. Lehman Brothers gave up 13 per cent on speculation that it would be forced to report larger than expected write downs for the quarter.

A separate report said Lehman Brothers was looking to offload its investment management business.

Bank of America, Citigroup and JPMorgan fell 4.2 per cent, 2.4 per cent and 3.2 per cent respectively. American Express was off 3.2 per cent and American International Group shed 5.9 per cent.

Fellow Dow component Hewlett-Packard dropped 2 per cent. But after the close, the company reported higher quarterly sales and earnings that topped forecasts. The company also forecast that fiscal fourth-quarter earnings would top current consensus estimates.

Hewlett-Packard shares gained as much as 1.2 per cent in extended trade, recouping some of the losses it suffered during the session.

Elsewhere, NYMEX light crude oil for September delivery rose US$1.66 to settle at US$114.53. While the spike in energy prices pressured the broader market, it benefited oil producers.

Chevron added 1.8 per cent and Exxon Mobil rose 1.9 per cent.

Meanwhile, COMEX gold for December delivery added US$11.10 to US$816.80 an ounce.

UK markets

British stocks fell for the third consecutive session as credit fears and US data dragged financials lower. Retailers were again out of fashion and home builders continued to drag.

The FTSE 100 dropped 129.80 points, or 2.38 per cent to 5320.40, its biggest decline in over a month.

HBOS closed 7.4 per cent lower, just 2.5p above the 275p underwriting price on last month’s rights issue. HSBC dropped 4.3 per cent, while shares in Royal Bank of Scotland fell 5.9 per cent and Barclays lost 5.4 per cent.

Insurers were also hurt by the negative sentiment from the US with Standard Life, Old Mutual, Prudential, Aviva and Legal & General all losing between 6.1 per cent and 7 per cent.

Builders and real estate companies dragged after data pointed to the slowest start rate in US home building in more than 17 years.

Wolseley and Barrat Developments slipped around 8.6 per cent, Hammerson dropped 6.6 per cent, while Taylor Wimpey was down 9.6 per cent.

To retailers, bid potential led Goldman Sachs to recommend a buy on Kesa Electrials. However, its shares lost 0.9 per cent, while Next was down 1.9 per cent. The American investment back also upgraded DSG International to neutral, but it stocks fell 5.2 per cent.

Meanwhile, Debenhams dropped 8.8 per cent after Lehman Brothers cut forecasts for the company.

European markets

European stocks were under the pump on Tuesday with financials feeling the heat over the ongoing credit crisis. Poor results also played their part in dragging shares.

Germany’s DAX fell 150.45, or 2.34 per cent to 6282.43, while France’s CAC 40 slipped 116.05, or 2.61 per cent to 4332.79.

Austrian bank Raiffesen International dropped 7.3 per cent after Lehman cut its price target.

French investment bank Natixis lost 5 per cent and Switzerland’s UBS fell 5 per cent. Swedish banks Swedbank and SEB fell 7.1 per cent and 6.6 per cent respectively.

Deutsche Postbank touched a three-year low before ending down 6.5 per cent. Reports suggested that talks between parent company Deutsche Post and potential bidders for a majority stake in Germany’s biggest retail lender had broken down. Deutsche Post fell 3.8 per cent.

In earnings related news, Swiss chemicals group Ciba Holding swung to a second-quarter loss after a 595 million Swiss franc write down as the group struggled to pass along rising raw materials costs. Ciba dropped 16.9 per cent in Swiss trading.

Elsewhere, Wienerberger, the world's largest brick maker, fell 6.1 per cent after saying its first-half net profit fell 30 per cent to 98.6 million euros. It expects an adjusted operating profit drop of as much as 15 per cent for the year and also intends to shut down 25 plants.

Japanese markets

Japanese shares erased Monday’s gains sending the index to a one-month low. US financial worries hit banks on renewed concerns that the broad based slowdown was beginning to crystallise.

The Nikkei 225 lost 300.4 points, or 2.28 per cent to 12865.05.

Exporters were among the hardest hit, with Canon down 3.8 per cent and TDK Corp falling 5.3 per cent, the two biggest drags on the Nikkei.

Plant engineering firm JGC bucked the trend to rise 3.3 per cent after Nomura Securities said the firm was likely to enjoy strong demand for energy-related plants.

There was much blood spilled amongst the financials amid fears of more problems to come from their US peers. Japanese lender Sumitomo Mitsui Financial Group was 2.7 per cent cheaper.

Koito Manufacturing plunged 6.9 per cent on a broker downgrade.

Hong Kong markets

The Hong Kong bourse finish at a twelve month low. Oil stocks tumbled on falling crude prices and property plays tracked lower ahead of Cheung Kong’s results.

The Hang Seng Index closed 446.3 points, or 2.13 per cent lower to 20484.37.

Cheung Kong fell 4.3 per cent on concerns that net profit could fall by 67 per cent. Investors worried about a lower contribution from sister company Hutchison Whampoa and lower development profits.

Sun Hung Kai and Sino Land lost 4.7 per cent and 5.3 per cent.

However, power stocks rose on hopes that China would increase power tariffs post Olympics. The speculation lifted Huaneng Power 2.7 per cent.

Other power stocks also bucked the trend. Datang Power gained 3 per cent, while China Resources Power moved up 1.8 per cent.

The Overnight MarketWatch report is provided by SHAW Stockbroking's egoli - simple but informative market news for the everyday investor.

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