Dollar Falls Below 97 Yen, First Time Since 1995, as Fed Cuts

The dollar fell below 97 yen for the first time in 12 years after the Federal Reserve cut its discount rate and financed a bailout of Bear Stearns Cos. by JPMorgan Chase & Co.

The dollar also dropped to a record low against the euro and the Swiss franc after the Daily Telegraph said yesterday Goldman Sachs Group Inc. will reveal $3 billion in writedowns when it releases quarterly earnings tomorrow. The dollar earlier trimmed losses after the Fed unexpectedly cut its discount rate by half a percentage point. Traders have also increased bets the Fed will slash the benchmark federal funds rate by 1 percentage point tomorrow.

The Fed's measures just provided a temporary impact, said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank. But those liquidity injections won't solve the problems. The injection of public money should be really needed. The dollar may fall to 96 yen this week.

The dollar fell to as low as 96.58 yen, the weakest since Aug. 28, 1995, before trading at 96.71 yen at 9:32 a.m. in Tokyo from 99.09 yen late in New York on March 14. Against the euro, the dollar fell to a record low of $1.5807. The dollar fell to an all-time low of 0.9804 Swiss francs.

The dollar also set record lows against the euro the previous four days as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to a record high of $1,009 an ounce.

Fed Meeting

Easing monetary policy, ongoing uncertainties in the financial sector and rising fears of capital outflows are chief reasons for our short-term bearish outlook.

The U.S. currency has lost about 16 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points to bolster the economy, lowering returns on dollar deposits.

The New York Fed agreed to provide financing through JPMorgan for up to 28 days after Bear Stearns said its liquidity position had significantly deteriorated. Bear Stearns shares fell 47 percent in New York trading.

The likelihood the Fed will cut its target rate for loans between banks by one percentage point to 2 percent at a meeting tomorrow rose to 56 percent on March 15, up from 6 percent a week earlier, futures on the Chicago Board of Trade showed. The balance of bets is on a cut to 2.25 percent. The euro region's main rate is 4 percent.

The dollar briefly recouped some of its losses after the Fed, in an emergency move, lowered the discount rate at which commercial banks borrow from the central bank to 3.25 percent from 3.50 percent. Primary dealers can borrow at the discount rate in exchange for a broad range of collateral, the Fed said in a statement today.

U.S. Stocks Advance Most in Five Years on Fed's Liquidity Plans

U.S. stocks rallied the most in five years after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage- related losses.

Citigroup Inc., Bank of America Corp. and Fannie Mae led the Standard & Poor's 500 Financials Index to its biggest gain in eight years on expectations the Fed's move will spur lending. Washington Mutual Inc. climbed the most since 2000 on speculation the largest savings and loan will get a cash infusion from an outside investor. All 10 industry groups in the S&P 500 rose except for health-care companies, which fell after WellPoint Inc. cut its earnings forecast.

The S&P 500 added 47.28 points, or 3.7 percent, to 1,320.65, climbing the most since October 2002 and trimming its decline for the year to 10 percent. The Dow Jones Industrial Average surged 416.66, or 3.6 percent, to 12,156.81. The Nasdaq Composite Index increased 86.42, or 4 percent, to 2,255.76. Almost 11 stocks gained for every one that fell on the New York Stock Exchange.

It's like they're putting jumper cables onto a battery to kick-start the credit market, said Nick Raich, who helps manage $34 billion at National City Private Client Group in Cleveland. They're doing their best to try to restore confidence.

The S&P 500 rebounded from the lowest level since August 2006 as 479 of its members advanced. Yields on two-year Treasury notes gained the most since March 1996, as the Fed's move to relieve the credit crisis prompted investors to dump holdings of government debt. The dollar rose the most in six months against the yen and rebounded from a record low versus the euro.

Citigroup Rises

Citigroup, the largest U.S. bank, rallied $1.80 to $21.49. Bank of America, the second-biggest, climbed $2.41 to $37.72.

Financial shares in the S&P 500 gained 7.4 percent as a group and rebounded from the lowest level since May 2003.

Fannie Mae, the biggest provider of financing for U.S. mortgages, added $2.19 to $22. Freddie Mac, the second-largest, rose $2.77 to $20.16. Countrywide Financial Corp., the biggest U.S. mortgage lender, climbed 75 cents to $5.11.

Washington Mutual added $1.84, or 18 percent, to $11.88.

A potential capital infusion by Warren Buffett and Goldman Sachs is the rumor, said Mike Capitani, head of equity trading at Caris & Co. in New York. Buffett's always looking for a bottom on things, and he's flush with cash.

Michael DuVally, a Goldman Sachs Group Inc. spokesman in New York, declined to comment. Jackie Wilson, a spokeswoman for Buffett's Berkshire Hathaway Inc., also wouldn't comment. A call and e-mail to Washington Mutual spokesman Derek Aney weren't returned.

Fed's Plan

The Fed said it plans to lend Treasuries in exchange for mortgage-backed securities and other debt that has plunged in value as homeowners defaulted on their payments. Banks around the world have posted $188 billion in writedowns and credit losses stemming from the collapse of the subprime-mortgage market. The S&P 500 Financials Index had lost 20 percent this year through yesterday.

By lending Treasuries in exchange for mortgage-backed securities, the Fed will allow banks to switch debt that is less liquid for bonds that are easily tradable. Fed officials anticipate the so-called primary dealers that trade directly with the central bank, including Goldman, Bear Stearns Cos. and Merrill Lynch & Co., will lend the Treasuries on to other firms in return for cash, helping the dealers shore up their balance sheets.

Fed officials told reporters on condition of anonymity that the program may be increased as needed. The move may also allow the central bank to cut interest rates less drastically than previously expected, leading to lower inflation.

Rate Bets

Traders reduced bets on a 0.75 percentage point cut in the Fed's benchmark rate by March 18, according to Fed funds futures. They priced in 62 percent odds of a reduction of that size, down from 86 percent odds yesterday. The rest of the bets are for a half-point cut in the rate, which is currently 3 percent.

Previous easing by the Fed failed to boost stocks. Since the Fed first addressed credit losses by cutting its discount rate by half a percentage point on Aug. 17, the S&P 500 has fallen 6.4 percent.

The central bank subsequently lowered the federal funds rate at which banks led to each other from a five-year high of 5.25 percent to 3 percent in five steps, including its first rate cut between scheduled meetings since 2001 on Jan. 22. The discount rate at which banks can borrow from the Fed declined to 3.5 percent from 6.25 percent.

`Something Else'

The Fed needed to do something else, because the rate declines and expectations of future rate declines really weren't having any positive impact at all, James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $220 billion, said in an interview with Bloomberg Television. You have to applaud them for coming up creatively with a way that gets more at the center of this crisis.

Bear Stearns rose 67 cents to $62.97 after a person close to investor Joseph Lewis, the company's second-largest shareholder, said he may add to his holdings. Bear Stearns, the second-biggest underwriter of U.S. mortgage-backed securities, erased an earlier decline of as much as 11 percent that was spurred by speculation the company lacks sufficient access to capital.

Bear Stearns said there is absolutely no truth to the rumors of liquidity problems, and Chief Executive Officer Alan Schwartz said company finances remain strong. The firm will probably have $1.9 billion more writedowns in the first half, Deutsche Bank AG estimated in a report.

Most Since 2002

Exxon Mobil Corp. rallied $4.22, or 5.1 percent, to $86.68 for its biggest gain since October 2002. Energy shares in the S&P 500 rose 4.6 percent as a group. Gasoline pump prices in the U.S. climbed to an all-time high of $3.227 a gallon and may reach $4 before summer because of record crude-oil prices, AAA said.

Nucor Corp. surged $4.12, or 6.5 percent, to $67.42. That sent raw-materials producers in the S&P 500 to a 6 percent advance, the most since July 2002. Nucor said it may significantly boost exports this year as overseas demand rises and a weaker dollar increases the attractiveness of U.S. supplies.

Weyerhaeuser Co., the largest U.S. lumber producer, climbed $2.81 to $61.80 after UBS AG raised its recommendation on the stock to buy from neutral, saying risk from the housing slump is starting to be priced in as market expectations have become more realistic.

Trade Deficit

Stocks also rose after the Commerce Department reported the January U.S. trade deficit was smaller than forecast. The gap grew 0.6 percent to $58.2 billion, the Commerce Department said. Exports increased 1.6 percent to the highest level ever.

Texas Instruments Inc. lost 89 cents to $28.76. The second- biggest maker of chips that run mobile phones cut its sales and profit forecasts because of slowing handset demand.

Health-care companies in the S&P 500 lost 0.2 percent as a group. WellPoint fell the most ever, dropping $18.66, or 28 percent, to $47.26 after cutting its 2008 profit forecast and saying weakness in the U.S. economy has limited enrollment gains.

Six analysts downgraded WellPoint. Bear Stearns and Goldman Sachs cut share-price estimates for rivals and lowered the industry's rating.

Aetna Inc., the third-largest U.S. health insurer, declined $3.86 to $42.65. Humana Inc., the fourth-biggest, lost $15.32 to $47.38.

The S&P 500 Managed Health Care Index of six companies dropped the most since Aug. 6, 1998, when a $900 million charge by UnitedHealth Group Inc. derailed its plans to buy Humana.

Economic Survey

The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast, according to a Bloomberg News monthly survey. The world's largest economy will grow at an annual rate of 0.3 percent from January through June, a half point less than projected in February, according to the median estimate of 62 economists polled from March 3 to March 10.

The Russell 2000 Index, a benchmark for companies with a median market value 96 percent less than the S&P 500's, climbed 4.6 percent for the biggest rally since July 2002. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 3.6 percent to 13,286.61. Based on its advance, the value of stocks increased by $580.1 billion.

Asia Stocks Fall on U.S. Payrolls

Asian stocks fell to a seven-week low, led by mining companies and automakers, after unexpected job losses in the U.S. last month heightened concern the world's largest economy is in recession.

Toyota Motor Corp., Japan's largest automaker, retreated after the yen climbed to an eight-year high on speculation the U.S. Federal Reserve will further cut interest rates. BHP Billiton Ltd., the world's biggest mining company, declined on concern metals demand will fall. Malaysia's stock benchmark tumbled the most since September 1998 after the ruling coalition lost a two-thirds parliamentary majority.

The global economy is deteriorating more rapidly, said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. That should continue to be a drag on the market.

The MSCI Asia Pacific Index slumped 1.2 percent to 137.95 at 10:16 a.m. Tokyo, set to close at its lowest since Jan. 23. Materials and industrial stocks led declines among the index's 10 industry groups.

Japan's Nikkei 225 Stock Average retreated 1.4 percent to 12,599.78. All regional markets open for trading dropped. Australia's S&P/ASX 200 Index lost 1.9 percent, while South Korea's Kospi index fell 1.7 percent.

In the U.S., the Standard & Poor's 500 Index declined 0.8 percent, a government report showed that February payrolls fell the most in five years. Economists had estimated jobs to rise. Signs the U.S. is in a recession, along with a further deterioration in credit markets, spurred traders to bet the Fed will cut its benchmark rate as low as 1.75 percent by June.

Dollar, Yen

The dollar weakened to 101.43 against the yen on March 7, the lowest since January 2000, and was recently at 102.25. A decline in the dollar erodes the value of Japanese companies' dollar-denominated sales.

Toyota, which counts North America as its biggest market, fell 1.7 percent to 5,240 yen. Every 1 yen gain in the Japanese currency against the dollar trims 35 billion yen ($342 million) from Toyota's annual operating profit, according to the company.

Sony Corp., which derived 24 percent of consumer- electronics sales from the U.S., lost 4.6 percent to 4,400 yen.

BHP dropped 3.2 percent to A$37.64, set for its weakest closing price since Feb. 13. Rio Tinto Group, the world's third- largest mining company, declined 3.1 percent to A$127.15. Sumitomo Metal Mining Co., Japan's biggest gold producer plummeted 8.1 percent to 2,045 yen.

Gold futures in New York fell for a third day from a record in after-hours trading, while copper declined as much as 0.7 percent. Platinum prices last week completed the biggest weekly decline in eight years.

Reduced Majority

Malaysia's Kuala Lumpur Composite Index tumbled 7.2 percent, the most since Sept. 8, 1998, after the ruling coalition government lost the two-thirds majority it has held in parliament for 34 years.

While the National Front coalition kept control of Southeast Asia's third-largest economy after the March 8 election, its reduced majority and loss of power in five of 12 states may see government-sponsored infrastructure projects face increased scrutiny, said Mushtaq Ibrahim, who manages about $1.4 billion at Amanah SSCM Asset Management Bhd.

U.S. Stocks Fall After GDP Trails Forecast, Jobless Claims Rise

U.S. stocks dropped for a second day after the economy grew less than forecast, jobless claims jumped and Federal Reserve Chairman Ben S. Bernanke said some smaller banks will probably collapse.

JPMorgan Chase & Co. led financial shares to their first drop in five days after Goldman Sachs Group Inc. and Merrill Lynch & Co. cut their profit estimates. The Standard & Poor's 500 Financials Index extended its decline after Bernanke said that in many cases small banks need to raise more capital. Sprint Nextel Corp., the third-biggest U.S. wireless carrier, retreated to a five-year low after reporting a record $29.5 billion loss.

The S&P 500 declined 12.97 points, or 0.9 percent, to 1,367.05 at 11:20 a.m. in New York. The Dow Jones Industrial Average decreased 126.34, or 1 percent, to 12,567.94. The Nasdaq Composite Index lost 19.68, or 0.8 percent, to 2,334.1. About seven stocks fell for every two that rose on the New York Stock Exchange.

We're still seeing the fallout from housing, and the credit crunch is still unfolding, said Alan Gayle, senior investment strategist and director of asset allocation at Trusco Capital Management in Richmond, Virginia, which oversees $17 billion of equities. It seems like every credit rock you turn over has something crawl out from underneath it. That makes us relatively defensive.

The U.S. economy in the fourth quarter grew at an annual rate of 0.6 percent, less than forecast and reflecting reduced estimates for spending and construction. Initial jobless claims increased by 19,000 to 373,000 in the week ended Feb. 23, the Labor Department said. Total benefit rolls rose for a second straight week to the highest since October 2005.

Profit Slump

The S&P 500 has dropped 6.9 percent this year on concern the collapse of subprime mortgages and a slowdown in the world's largest economy will drag down profits. Profit slumped 16 percent on average at the 440 members of the S&P 500 that reported fourth-quarter results so far, according to Bloomberg data. During the first quarter, earnings will decline 1.6 percent, according to the average analyst estimate.

Markets tend to bottom out fairly slowly, Bruce McCain, head of investment strategy at Key Private Bank in Cleveland, which manages $30 billion, said in a Bloomberg Television interview. We don't want to be too quick to commit money only to see markets roll over with a wave of bad news. We're much more optimistic about the economy later this year.

Sprint Nextel fell 72 cents to $8.23 on the NYSE. The company's per-share loss was $10.36 as customers defected and it wrote down the value of the purchase of Nextel Communications Inc. Sprint also eliminated its dividend.

Goldman, Merrill

JPMorgan lost $1.45 to $42.96. Goldman Sachs and Merrill Lynch reduce their forecasts on expectations of writedowns in the value of its home-equity loans.

Financial shares lost 2.6 percent, the most among 10 industries in the S&P 500. Bernanke, testifying before Congress about the state of the economy, said there probably will be some bank failures. Large banks will likely be spared because they have enough cash to stay solvent, he added.

American International Group Inc. fell on speculation the insurer may report its first quarterly loss in five years. AIG, the world's biggest insurer, fell $1.32 to $50.93. Chief Executive Officer Martin Sullivan, who has failed to win the confidence of shareholders since he succeeded Maurice Hank Greenberg in 2005, may report a fourth-quarter loss of $1.20 a share, according to Goldman Sachs analyst Tom Cholnoky.

`Disproportionately Shared'

The problem in the banking industry is disproportionately shared by the largest names, said Matthew DiFilippo, director of research at Stewart Capital Advisors, which manages $1 billion in Indiana, Pennsylvania.

Most U.S. stocks retreated yesterday as a slump in utilities and drugmakers offset speculation Federal Reserve Chairman Ben S. Bernanke will cut interest rates to avert a recession.

Mylan Inc. sank $1.09 to $12.06. The company said it had a quarterly loss of $1.38 billion on expenses from its $6.9 billion purchase of Merck KGaA's generics unit.

Thornburg Mortgage Inc. tumbled $1.93, or 17 percent, to $9.61. The mortgage lender that specializes in adjustable-rate loans said it may have to sell assets to meet lenders' demands for increased collateral as prices of mortgage-backed bonds extended declines this month.

Thornburg has already met $300 million of margin calls, depleting its available cash and reducing its ability to meet future demands for more collateral, it said in a filing with the Securities and Exchange Commission today.

The gain in gross domestic product from October through December matched the government's advance estimate issued last month and followed a 4.9 percent third-quarter pace, according to revised figures issued today by the Commerce Department in Washington. The median estimate in a Bloomberg News survey of economists projected a 0.8 percent increase.

U.S. Stocks Rise on Rate-Cut Speculation, Fannie, Freddie Caps

U.S. stocks rose for a fourth day after Federal Reserve Chairman Ben S. Bernanke said policy makers will act quickly to boost growth and regulators allowed Fannie Mae and Freddie Mac to buy more mortgages.

Fannie Mae and Freddie Mac, the biggest sources of financing for U.S. home loans, rallied and led the market's rebound after the government removed restrictions on the size of their portfolios. Citigroup Inc., American Express Co. and General Motors Corp. led gains in the Dow Jones Industrial Average, which fell earlier after orders for durable goods dropped more than forecast in January.

The Standard & Poor's 500 Index climbed 4 points, or 0.3 percent, to 1,385.29 at 11:27 a.m. in New York, capping its longest stretch of gains this year. The Dow average added 54.63 points, or 0.4 percent, to 12,739.55, rebounding from a loss of 0.6 percent. The Nasdaq Composite Index rose 13.24, or 0.6 percent, to 2,358.23. About three stocks gained for every two that fell on the New York Stock Exchange.

If liquidity is restored to the mortgage market it has a good chance of restoring liquidity to the rest of the credit markets, said Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co. in New York. There's a lot of companies having a tough time accessing capital because the banks are at the center of the credit crisis.

Bernanke's comments prompted traders to increase bets on larger rate cuts. He told Congress that the Fed will act in a timely manner to insure against downside risks to the economy. Stocks fell earlier after the Commerce Department said bookings for products meant to last several years decreased 5.3 percent in January.

Fannie, Freddie

Fannie Mae rose $2.82, or 10 percent, to $29.79. Freddie Mac climbed $1.91, or 7.6 percent, to $27.12. The limits on the size of the companies' mortgage portfolios, imposed after accounting errors at the government-chartered companies, will be lifted on March 1, according to a statement sent by e-mail today from the Office of Federal Housing Enterprise Oversight.

Citigroup Inc., the biggest U.S. bank, climbed 44 cents to $25.39. Goldman Sachs Group Inc., the largest securities firm, rallied $3.55 to $176.25.

Traders boosted bets that the Fed will cut interest rates by 0.75 percentage point to 2.25 percent by the central bank's March meeting. Fed funds futures trading shows 12 percent odds of a three-quarter point cut, compared with no chance yesterday. The remaining bets are for a half-point reduction to 2.5 percent.

`Hit the Ground Running'

The Fed has really hit the ground running in 2008 trying to keep this going, but it looks as though they're pushing on a string, Peter Sorrentino, who helps manage $15 billion as senior portfolio manager at Huntington Asset Advisors in Cincinnati, said in an interview on Bloomberg Television. The capital flows around the globe are overwhelming what the Fed is able to do at this juncture.

Autodesk Inc. dropped $6.36 to $32.74. The software maker reported fourth-quarter profit, excluding compensation and acquisition costs, of 52 cents a share. That missed the 54-cent average of analysts' estimates.

Amgen Inc. lost $1.02 to $46.80. Johnson & Johnson, the world's biggest health-products maker, slipped 63 cents to $63.09. A study published in this week's Journal of the American Medical Association found that cancer patients who take anemia drugs sold by the companies have a 10 percent higher risk of dying than those who didn't take the treatments.

The risks of the anemia drugs are well-defined, and the newly published analysis looks exactly like what we've seen before, Roger Perlmutter, Amgen's head of research and development, said in an interview.

U.S. Stocks Fall After Service Industries Unexpectedly Shrink

U.S. stocks tumbled the most in three weeks after service industries fell to the lowest levels since 2001, reinforcing speculation the economy has tipped into a recession.

Exxon Mobil Corp., General Electric Co. and AT&T Inc. led declines in New York trading, and all 10 industry groups in the Standard & Poor's 500 Index retreated, after the Institute for Supply Management's index unexpectedly contracted in January. Goldman Sachs Group Inc. posted its biggest drop in two months on Oppenheimer & Co. analyst Meredith Whitney's downgrade of the largest securities firm.

As the recession unfolds, then profits will disappoint, Stuart Schweitzer, who helps oversee $420 billion as the global markets strategist at JPMorgan Private Bank, said in a Bloomberg Television interview from New York. It's already under way.

The S&P 500 lost 27.26, or 2 percent, to 1,353.56 at 11:20 a.m. in New York. The Dow Jones Industrial Average decreased 238.02, or 1.9 percent, to 12,397.14. The Nasdaq Composite Index slipped 40.03, or 1.7 percent, to 2,342.82. Shares also retreated in Asia and Europe.

About six stocks fell for every one that rose on the New York Stock Exchange after the ISM's non-manufacturing index, which reflects almost 90 percent of the economy, slumped to 41.9 from 54.4 the prior month. A reading of 50 is the dividing line between growth and contraction.

GE, the second-largest U.S. company by market value, lost 65 cents to $34.72. AT&T, the nation's biggest phone company, declined $1.25 to $36.91.

Energy Shares Slump

Crude oil for March delivery fell 1.7 percent to $88.47 a barrel in New York after the ISM report bolstered speculation fuel demand will slow in the U.S., the world's biggest energy consumer. Gold and copper prices also declined, dragging down shares of mining companies.

Exxon Mobil Corp., the biggest U.S. energy company, lost $2.20 to $83.24. Chevron Corp., the second-largest, declined $1.78 to $80.24. Freeport-McMoRan Copper & Gold Inc. retreated $3.85 to $87.33. Newmont Mining Corp. fell 30 cents to $50.61.

Goldman dropped $8.44, or 4.2 percent, to $192.36. The firm was cut to perform from outperform by Oppenheimer's Whitney. The stock's valuation will not be sustainable in a year when Goldman Sachs will probably deliver results that will not be substantially better than its peers, Whitney wrote in a note dated Feb. 4.

Citigroup Inc., the biggest U.S. bank by assets, lost $1.11 to $28.11. Merrill Lynch & Co., the nation's third-largest securities firm, slid $2.49 to $55.24. The S&P 500 Financials Index retreated 3.3 percent, the biggest decline since Jan. 17.

Ratings Watch

Banks and brokerages also retreated after Fitch Ratings said collateralized debt obligations may be downgraded as many as five levels. The biggest cuts will be to AAA rated CDOs that are based on credit-default swaps and aren't actively managed, according to ratings guidelines proposed by Fitch today. CDOs that package high-yield assets may be cut as many as three levels for the portions first in line for losses.

National Semiconductor Corp. fell $1.31 to $17.71. The maker of chips for devices such as Apple Inc.'s iPhone said revenue this quarter will be as much as $455 million. That's below the $484 million average estimate of analysts in a Bloomberg survey. The company on Dec. 6 forecast sales of $474 million to $495 million.

Texas Instruments Inc., the biggest maker of mobile-phone chips, dropped $1.22 to $29.94. Intel Corp., the world's largest chipmaker, lost 73 cents to $20.35.

Fed Bets

Traders boosted bets on Federal Reserve interest-rate cuts after the ISM report. Fed funds futures indicate a 100 percent chance policy makers will lower the target for overnight loans between banks by 0.5 percentage point to 2.5 percent by a March 18 policy meeting. That compares with 68 percent odds yesterday.

General Motors Corp. slipped 46 cents to $27.11. GMAC LLC, the lending company that General Motors sold to a hedge fund manager, lost $724 million in the fourth quarter because home buyers didn't keep up with their mortgage payments. A group led by Cerberus Capital Management bought a 51 percent stake in GMAC in 2006.

NYSE Euronext slipped $7.44 to $75.29. The owner of securities exchanges on both sides of the Atlantic said fourth- quarter earnings more than tripled on record equity trading and new listings. Excluding merger costs and one-time charges, profit was in line with the average estimate of 12 analysts surveyed by Bloomberg.

New iPhone

Apple Inc. gained 19 cents to $131.84 after unveiling higher-priced models of its iPhone mobile handset and iPod media player with double the memory of previous versions.

KB Home climbed 55 cents to $26.71 after Bank of America Corp. raised its recommendation on the Los Angeles-based homebuilder to buy from neutral.

Significantly better affordability drives demand, analysts including Michael R. Wood wrote in a note to clients dated Feb. 4. While we do not expect a spike in demand immediately, we expect that it will gradually improve over 2008.

Seagate Technology increased 66 cents to $21.40. The world's largest maker of hard-disk drives raised its quarterly dividend by 20 percent and announced plans to buy back as much as $2.5 billion of stock over the next two years.

Whirlpool Corp. added $8.52 to $90.11. The world's largest appliance maker posted fourth-quarter profit that topped analysts' estimates on an increase in overseas sales and reduced costs following its acquisition of Maytag Corp.

U.S. Economy: Payrolls Decline for First Time in Four Years

The U.S. unexpectedly lost jobs for the first time in more than four years, increasing the odds the economy will fall into a recession and making it likely the Federal Reserve will cut interest rates another half point next month.

Payrolls fell by 17,000 in January after an 82,000 gain in December that was larger than initially reported, the Labor Department said today in Washington. None of the 80 economists surveyed by Bloomberg News predicted the decline.

Employment is one of the indicators, along with wages, production and sales, that help determine the start of economic contractions. The decline poses a further threat to consumer spending, which accounts for 70 percent of the economy, after households were already hurt by falling home and stock values.

It is highly unusual for payrolls to fall except in a recession, Christopher Low, chief economist at FTN Financial in New York, said in an interview. The Fed will have to keep cutting rates and we can expect a cut at the next meeting in March.

Odds of a half-point cut in the Fed's benchmark rate by the March 18 meeting rose to 78 percent from 68 percent late yesterday, according to April futures contracts quoted on the Chicago Board of Trade.

Manufacturers, state governments and construction companies lost jobs, while the healthcare and education industries added fewer workers than the month before. The jobless rate declined to 4.9 percent in January from 5 percent, the highest in two years.

`Red Flags'

Employment fell across a broad assortment of industries, said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina. It raises a number of red flags for the economy. There is no question economic growth has slowed to a crawl and the risks of recession are significant. That is why the Fed has cut interest rates so aggressively.

Treasuries erased losses after the report, with yields on benchmark 10-year notes at 3.57 percent at 9:11 a.m. in New York, from as high as 3.66 percent earlier today.

The drop in payrolls in January was the first since August 2003. The median forecast was for a payrolls gain of 70,000, compared with an initially reported gain of 18,000 in December. Forecasts of an increase ranged from 5,000 to 160,000.

Fed policy makers lowered their benchmark rate by a half- point two days ago, after an emergency reduction of three- quarters of a point Jan. 22, the fastest easing of monetary policy since 1990. Chairman Ben S. Bernanke and his colleagues are next scheduled to gather March 18.

Data Revisions

Revisions for November and December brought total job gains for the two months to 142,000, versus a previously reported 133,000.

Service industries, which include banks, insurance companies, restaurants and retailers, added 34,000 workers last month after an increase of 143,000 jobs in December. Retail payrolls rose 11,200 after a decline of 12,000 in December.

Factory payrolls dropped by 28,000 after falling 20,000 a month earlier. Economists had forecast a drop of 20,000 in manufacturing employment. Builders trimmed payrolls by 27,000 in January.

Government payrolls shrank by 18,000 during January, the first decline in six months, after rising 28,000 in December.

Today's report showed the first drop in the average work week since July. Average weekly hours worked by production workers slipped to 33.7 from 33.8. That helped bring average weekly earnings down 42 cents to $598.18.

Earnings Slow

Hourly wages rose less than forecast, increasing 4 cents, or 0.2 percent, on average to $17.75 in January. Wages were up 3.7 percent from a year earlier, the same as in December. Economists had expected a 0.3 percent increase for the month and 3.9 percent for the 12-month period.

The deepest housing recession in a quarter century has dragged down home construction for the past two years, hurting demand for building materials and appliances and prompting firings at construction, mortgage-finance and other housing- related industries.

Home Depot Inc., the world's largest home-improvement retailer, yesterday said it fired 500 workers at its Atlanta headquarters, or about 10 percent of the staff there, to focus resources on its stores, a spokesman said.

We're operating in a tough business environment, and we expect that to continue into 2008, said spokesman Ron DeFeo.

Seasonal Adjustments

With today's report, the Labor Department revised the payroll numbers after reviewing more complete tax data not available earlier from state unemployment insurance programs and making adjustments to its estimates of seasonal hiring patterns.

The revision subtracted 376,000 jobs from the previous estimate for the year ended December 2007, bringing total job growth for the period to 1.137 million.

Growth in the fourth quarter slowed to a 0.6 percent pace, compared with a 4.9 percent rate in the previous three months, the government said this week. Consumer spending weakened to a 2 percent pace in the last three months of 2007 from a 2.8 percent rate in the third quarter.

Today's Labor Department figures ran counter to a private report Jan. 30 that suggested hiring rebounded last month. Companies hired 130,000 additional workers in January, according to data compiled by ADP Employer Services. The figures include only private employment and don't take into account hiring by government agencies.

According to the Labor Department report, private employers added 1,000 jobs in January.

Economy much weaker than expected

Gross domestic product slowed to a 0.6% growth rate in the fourth quarter, raising both recession fears and hope for another deep Fed cut.

The economy grew at a much slower pace in the last three months of the year, according to a government report Wednesday that came in well below Wall Street expectations.

The report raised fears of a recession and hopes for another significant interest rate cut by the Federal Reserve.

The gross domestic product, the broadest measure of the nation's economic activity, grew at an annual rate of 0.6%, adjusted for inflation, in the fourth quarter, according to the Commerce Department, down from 4.9% in the final reading of growth in the third quarter. Economists surveyed by Briefing.com had forecast GDP would slow to a 1.2%.

The report comes amid rising concern that the U.S. economy is falling into a recession, with some economists arguing the downturn started in the final month of 2007.

It also comes as the Fed concludes a two-day meeting to consider whether or not to cut interest rates once again in order to spur the economy and ward off a recession. The central bank has already lowered rates by 1.75 percentage points since September, including an emergency 0.75 percentage point cut, also known as a 75 basis point cut, a week ago.

Investors are betting that the Fed announces at least another quarter percentage point cut, or 25 basis points, when it announces its decision at 2:15 p.m. ET, with those buying fed funds futures on the Chicago Board of Trade were pricing in a 70% chance of a half-point, or 50 basis point cut, ahead of the GDP report.

But while the weakness in the report suggested that the Fed might move aggressively to cut rates, the inflation readings in the report could be a concern for the central bank. The so-called price deflator, which measures prices overall, rose at a 2.6% annual rate, up from only a 1% rise in the third quarter but in line with forecasts.

Perhaps of greater concern is that the so-called core PCE deflator - a more closely watched inflation reading that measures prices that individuals pay excluding volatile food and energy prices - rose 2.7%, up from a 2.0% reading in the third quarter and nearly double the 1.4% rise in the second quarter.

The Fed is generally seen as wanting to see that reading rise between 1% and 2%, meaning the latest reading is far from its so-called comfort zone. To top of page

U.S. Stocks Drop on Credit Concern; JPMorgan, Citigroup Retreat

U.S. stocks dropped for the first time in three days, led by financial companies, on concern banks will be saddled with more credit-market losses and the Federal Reserve won't cut interest rates enough to stimulate growth.

JPMorgan Chase & Co. and Citigroup Inc. led banks lower after an analyst said Fortis, Belgium's biggest financial services company, faces additional writedowns from mortgage- backed securities. Speculation that subprime-infected investment losses are worsening helped erase a morning rally fueled by better-than-expected earnings at Microsoft Corp. and Caterpillar Inc.

The Standard & Poor's 500 Index and Dow Jones Industrial Average still posted their first weekly gains of 2008 as a government stimulus plan and the Fed's surprise 0.75 percentage- point rate cut helped the market rebound from its worst-ever start to a year. The S&P 500 decreased 21.46, or 1.6 percent, to 1,330.61. The Dow Jones Industrial Average lost 171.44, or 1.4 percent, to 12,207.17. The Nasdaq Composite Index slumped 34.72, or 1.5 percent, to 2,326.2.

There's going to be more issues with regard to writedowns, said Peter Sorrentino, who helps oversee $12 billion as senior portfolio manager at Huntington Asset Management in Cincinnati. We've got more classes of debt securities that are going to become questionable as this consumer malaise drags on for a while.

Today's declines capped a week in which the market's benchmark gauge of volatility reached a five-year high and the Dow posted its biggest intraday swing since 2002. The S&P 500 added 0.4 percent this week, trimming its 2008 loss to 9.4 percent. The Dow gained 0.9 percent in the week and is down 8 percent this year.

'Blowing Up'

Financial companies in the S&P 500 lost 2.5 percent as a group today for the biggest drop among 10 industries. Yesterday's announcement of a $7.2 billion loss by Societe General SA on unauthorized trades spurred speculation that institutions face more losses after banks wrote down $133 billion stemming from last year's collapse of the U.S. subprime mortgage industry.

I've heard like three different rumors about a hedge fund blowing up, said Thomas Garcia, head of trading at Thornburg Investment Management, which oversees $53 billion in Santa Fe, New Mexico. We also have the Fed meeting on Tuesday and nobody really knows what they're going to do.

Fed Watch

Futures contracts show a 78 percent chance that the Federal Reserve will cut its benchmark interest rate by 0.5 percentage point to 3 percent when policy makers hold their next scheduled meeting on Jan. 30-31. The rest of the bets are for a quarter- point reduction.

JPMorgan, the third-biggest U.S. bank by assets, slipped $1.32 to $43.64. Citigroup, the largest, declined 69 cents to $26.64. Fortis should revise its outlook to take into account writedowns on its super senior subprime collateralized debt obligations, Jaap Meijer, a London-based analyst at Dresdner Kleinwort, wrote in a research note.

Freddie Mac slipped $2.42, or 7.6 percent, to $29.58. Fannie Mae tumbled $2.39, or 7 percent, to $31.80. Senate Banking Committee Chairman Christopher Dodd pledged to speed legislation creating a tougher regulator for the two biggest providers of money for home loans. The declines were the two steepest in the S&P 500.

Financial companies are expected to drag S&P 500 members to their worst earnings season since 2001. Analysts estimate the index's average profit fell 18 percent in the fourth quarter from a year ago, according to projections compiled by Bloomberg today. Financial earnings are forecast to fall 100 percent.

The Fed lowered its target for the overnight lending rate between banks by 0.75 percentage point on Jan. 22 after an unscheduled meeting, its first emergency action since 2001 and the biggest single reduction since it began using the rate as the principal tool of monetary policy in 1990.

'Sell Strength'

A big part of the market wants to sell strength until we get more Fed ease and some stimulus, said Brian Rauscher, director of portfolio strategy at Brown Brothers Harriman & Co. in New York. The firm oversees $44 billion in client assets.

European banks have tumbled this week on concern they may report more writedowns linked to U.S. subprime mortgages. In addition to Societe Generale's loss from bets placed secretly by a trader, the French bank also took 2.05 billion euros in writedowns related to credit markets. Citigroup today downgraded the shares to sell' from buy.

WestLB AG, Germany's third-biggest state-owned lender, and Bayerische Landesbank, the second-largest, also announced plans to assign lower values to their investments this week.

Schering-Plough Corp. and Merck & Co. dropped today after the U.S. Food and Drug Administration said it will take about six months to review new information about their cholesterol medications. Schering-Plough fell $1.15, or 5.7 percent, to $19.02. Merck lost $1.77, or 3.6 percent, to $47.79.

Microsoft, Caterpillar

Microsoft fell 31 cents to $32.94 after rising as much as 5.3 percent. The world's biggest software company said profit in the year ending June 30 will be $1.85 to $1.88 a share, on sales of $59.9 billion to $60.5 billion. Analysts on average estimated earnings of $1.81 and sales of $59.4 billion. Microsoft boosted its profit projections for the fiscal year ending June 30.

Caterpillar advanced 68 cents to $65.93. The company said sales in Europe and Asia lifted earnings, offsetting a U.S. slowdown in construction and mining demand. Profit increased to $975 million, or $1.50 a share, from $1.32 a year earlier, and exceeded the average analyst estimate by 1 cent.

Honeywell

Honeywell International Inc. added $2.05 to $58.25. The biggest maker of aircraft controls said fourth-quarter earnings rose 18 percent on demand for airplane parts, thermostats and security systems. Net income climbed to $689 million from $585 million, the company said last night.

More than two stocks dropped for every one that rose on the New York Stock Exchange. Some 1.9 billion shares changed hands, 17 percent more than the three-month daily average.

The Russell 2000 Index, a benchmark for companies with a median market value of $521.3 million, dropped 0.6 percent to 688.6. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 1.4 percent to 13,423.62. Based on its decline, the value of stocks decreased by $231 billion.

U.S. stocks yesterday posted their biggest two-day rally since November after Xerox Corp. and Lockheed Martin Corp. reported profit that topped analysts' estimates and lawmakers agreed on a plan to pay tax rebates to families.

Fed Cuts Rate 0.75 Percentage Point in Emergency Move

The Federal Reserve lowered its benchmark interest rate in an emergency move for the first time since 2001 after stock markets tumbled from Hong Kong to London and the U.S. economy showed increasing signs that it's headed into a recession.

The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990.

Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households, the Fed said in a statement in Washington. The FOMC took the action in view of a weakening of the economic outlook and increasing downside risks to growth.

Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after the unemployment rate hit a two-year high and stocks slumped. Chairman Ben S. Bernanke shifted the Fed's stance to a more- aggressive approach in remarks this month citing a need for decisive and timely action.

The dollar fell and Treasury securities rallied after the announcement. Stocks slumped as some investors questioned whether the Fed would be able to avert a recession. The Standard & Poor's 500 Index fell 3.5 percent to 1,278.28 at 9:34 a.m. in New York.

Bear Market

Yesterday, almost half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.

The bottom line was that financial conditions were tightening sharply and affecting the economic outlook, said former Fed economist Brian Sack, who is now with Macroeconomic Advisers LLC in Washington. The view so far has been that they're somewhat behind the curve and needed to adopt a somewhat more aggressive approach.

The Bank of Canada, in a scheduled meeting, lowered its main interest rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown.

The Fed Board of Governors, in a related move, lowered the so-called discount rate on direct loans to commercial banks by a 0.75 percentage point to 4 percent.

`Downside Risks'

Appreciable downside risks to growth remain, the Fed statement said. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade.

The FOMC vote was 8-1, with St. Louis Fed President William Poole preferring to wait until the regularly scheduled meeting. Fed Governor Frederic Mishkin was absent and not voting.

Fed officials met by video conference at about 6 p.m. yesterday, spokeswoman Michelle Smith said. Mishkin was traveling and unable to participate, she said. The voting members were the same as in 2007 because the presidents don't rotate in until the first regular meeting, Smith said.

First Since 2001

Today's so-called inter-meeting rate cut is the first since Sept. 17, 2001, when the Fed lowered borrowing costs in the aftermath of the terrorist attacks six days before. That was the third emergency reduction in a year which saw the last U.S. recession.

Bernanke warned in a Jan. 10 speech and again in testimony to Congress Jan. 17 that the 2008 economic outlook had worsened and the downside risks to growth have become more pronounced. Still, he said the Fed wasn't forecasting a recession this year.

Retail sales fell last month, unemployment rose, and housing markets are mired in the worst slump in 16 years. Homebuilders broke ground on the fewest homes since 1991 last month, Commerce Department figures showed Jan. 17. Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen.

Bernanke told legislators at the House Budget Committee that banks were trying to protect asset quality and funding, and tightening credit conditions for the rest of the economy as a result. Banks have also evidently become more restrictive in their lending to firms and households, he said.

Impact of Housing

Fed policy makers have warned that housing will continue to be a damper on growth. Richmond Fed President Jeffrey Lacker said Jan. 18 that didn't expect homebuilding to bottom out in 2008. Bernanke said the day before that housing markets may continue to be a drag on growth for a good part of this year.

In his Jan. 17 congressional testimony, Bernanke also endorsed the idea of a fiscal-stimulus package of as much as $150 billion to help revive economic growth, assuming the spending is quick and temporary. The next day, the Bush administration proposed a growth package of as much as $150 billion, without offering specifics.

Told of the decision after a speech in Washington, Treasury Secretary Henry Paulson called the Fed's move very constructive and a confidence builder. He said it was a sign to the rest of the world that the U.S. central bank is nimble.

Paulson said in the speech to the U.S. Chamber of Commerce in Washington that a stimulus package must be enacted quickly and that it must have an immediate impact.