Dow at 7-month low

Blue chips close at lowest point since April on worries about mortgage and credit markets and the surge in oil prices. Markets closed for Thanksgiving.

Stocks slumped Wednesday, with the Dow closing at a 7-month low, as worries about the credit and mortgage market and higher oil prices hit investors hard ahead of what for many will be a long holiday weekend.

Treasury prices rallied, the dollar fell, oil prices edged lower and gold prices rose.

The Dow Jones industrial average lost 211 points or 1.6 percent. That set the Dow at its lowest point since April 17, when it ended the session at 12,773.04.

The S&P 500 index lost 1.6 percent and the Nasdaq composite lost 1.3 percent.

The stock selloff was very broad, with homebuilders, banks, mortgage lenders and technology shares leading the decline.

Financials and housing have been a wet blanket on the entire market, said Richard Sparks, senior equities analyst at Schaeffer's Investment Research. We're seeing the weight of the subprime worries and the credit crunch coming home to roost.

All financial markets are closed Thursday for Thanksgiving and Friday's abbreviated session ends at 1:00 p.m. ET. Attendance Friday is expected to be low and trading volume light.

Despite the minimal market action on that day, Friday is key for stocks and the economy in that it is Black Friday, the kickoff for the critical holiday shopping season.

Worries about consumer spending, which fuels roughly two-thirds of the economy, have played a big role in the recent stock market decline. Therefore, the results from retailers will be significant in determining whether stocks rebound in December or fall further.

Everyone is going to be keying on the retail numbers and that could come down on either side of the fence, Sparks said.

If you have a poor start to the Christmas Season, you have real evidence of the economic slowdown, he said. But if the consumer is resilient - although it may cause worries that the Fed won't have a good reason to cut rates - it might also placate investors worried about a recession.

Stocks have been whipsawed lately as investors have muddled through the ongoing housing and credit market turmoil, eyed the weak dollar and fretted over oil prices near $100 a barrel. On Tuesday the Fed issued a sluggish 2008 economic outlook, confirming other recent signs of a slowdown.

Wednesday's index of leading economic indicators and consumer sentiment readings added to the lackluster growth outlook.

Additionally, the Mortgage Banker's Association reported a 3.6 percent drop in applications last week. Separately, 47 of the 50 states saw a drop in existing home sales in the third quarter, according to a National Association of Realtors report.

Equity markets are reacting to the economic slowdown, said Michael Strauss, chief economist at Commonfund. There is some worry about the consumer, about discretionary business spending and about the financial sectors of the economy.

He said that there may also be some worry that the Federal Reserve is behind in addressing these issues, as was reflected by the steep decline in Treasury bond yields Wednesday.

Treasury prices jumped, lowering the corresponding yields, as investors sought safety in the safer haven of bonds. The rally sent the benchmark 10-year note below 4 percent, during the session, for the first time in two years.

There's a pretty strong flight-to-quality there, Strauss said. There's a clear bet that the Fed has further to go, even if the Fed doesn't realize it.

Policy makers meeting on Dec. 11 are widely expected to cut the fed funds rate, a key short-term interest rate by a quarter-percentage point.

Among stock movers, Freddie Mac shares continued to slip after plunging nearly 27 percent Tuesday. The government-sponsored mortgage backer reported a steep quarterly loss Tuesday and a $1.2 billion writedown due to credit losses.

Fellow mortgage lenders Countrywide Financial and Washington Mutual slipped too, while Fannie Mae bounced back after sliding through the morning.

Big banks slumped, including Merrill Lynch, Lehman Brothers and Morgan Stanley.

Declines were broad based, with 29 out of 30 Dow components falling, led by AIG, American Express, JP Morgan, General Electric and Intel.

Intel was one of many chips falling, including Advanced Micro Devices and Micron Technology. Micron slumped for a second session after a Morgan Stanley analyst initiated coverage of the company Tuesday with an underweight rating, AP reported.

The Dow's lone advancer was GM, which recovered from a steep morning selloff after reports said that GMAC, its struggling former finance unit, is taking steps to keep its mortgage unit alive.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost three to one on volume of nearly 1.61 billion shares. On the Nasdaq, decliners topped advancers by seven to three as 2.07 billion shares changed hands.
Federal Reserve battles recession fears

In economic news, the October index of Leading Economic Indicators (LEI) fell 0.5 percent, after rising 0.1 percent in the previous month, suggesting that the economic slowdown could accelerate in the months ahead. Economists surveyed by Briefing.com thought LEI would fall 0.3 percent.

The November consumer sentiment index from the University of Michigan showed a rise to 76.1 from an initial reading of 75.0, but was down from last month's 80.9. Economists thought it would hold steady, on average.

The number of Americans filing new claims for unemployment last week fell by 11,000, as expected.

U.S. light crude oil for January delivery fell 74 cents to settle at $97.29 a barrel on the New York Mercantile Exchange, after having hit a record high of $99.23 in electronic overnight trading.

Oil prices were volatile after the release of the weekly oil inventories report, which showed a surprise drop in crude supplies.

COMEX gold for December delivery rose $7.20 to settle at $798.60 an ounce.

Source - CNN Money