Bankruptcies Jump 30% in March, Led by Housing-Bust States

The jump in March bankruptcy filings is another indication the U.S. economy is in recession, led by states where the housing boom turned to bust.

The more than 90,000 bankruptcy filings in March were the highest since insolvency laws became more restrictive in October 2005, according to statistics compiled from court records by Jupiter eSources LLC. At a daily rate, filings in March were 30 percent above the pace in 2007.

Rising bankruptcies, together with mounting foreclosures and fewer jobs, are further signs the biggest housing slump in a generation is hurting consumers and businesses. Federal Reserve Chairman Ben S. Bernanke this week for the first time acknowledged the economy may be facing a recession and vowed to act to cushion the slowdown.

We're seeing fairly high readings in these measures of distress like bankruptcies, foreclosures and mortgage defaults, said Chris Low, chief U.S. economist at FTN Financial in New York. The most affected states are also where the most housing-related business growth was, said Low.

The states most affected by the housing recession, including California, Nevada and Florida, were among those with the largest increases in bankruptcies.

They are also among states where unemployment rates exceed the national average. The jobless rate in California is 5.7 percent and Nevada's is 5.5 percent in February. Nationally, 5.1 percent of workers were unemployed in March, the highest level since September 2005, the Labor Department reported yesterday.

California, Florida

California led the nation with a 42 percent increase in bankruptcy filings at an annual pace in the first quarter, according to Jupiter eSources LLC. Florida had a 35 percent increase and Nevada saw a 32 percent rise, according to the Oklahoma City-based Jupiter's service known as AACER, or Automated Access to Court Electronic Records.

Nevada led the nation with the highest foreclosure rate in February, with filings up 68 percent from a year before, and with one in every 165 households in default or foreclosure, according to RealtyTrac Inc., a seller of foreclosure data.

California had the second-highest rate, with one in every 242 households in default or foreclosure, followed by Florida, with one in every 254, RealtyTrac said March 13.

The housing recession, coupled with weakening consumer spending and mounting credit losses at financial firms, is dragging the economy toward its first recession since 2001.

Payrolls Drop

The economy lost 80,000 jobs in February, the biggest loss since March 2003, following larger than previously reported declines of 76,000 in each of the two prior months, the Labor Department also said yesterday.

Economists surveyed by Bloomberg in the first week of March forecast growth would slow to a 0.1 percent pace in the first quarter, from a 0.6 percent rate in the last three months of 2007. The odds of a recession were even.

Since then, most of the data has indicated deterioration. Retail sales fell 0.6 percent in February, for a second decline in three months. Cars and light trucks sold at an average 15.2 million annual pace in the first three months of the year, the fewest since the third quarter of 1998.

Consumer spending has faltered as record energy prices and falling home values leave Americans feeling less wealthy and with less cash to spend. Spending rose in February at the slowest pace in more than a year, the government said last week.

Business bankruptcies and reorganizations posted gains too. First-quarter filings to liquidate or reorganize in Chapter 11 grew at an annual pace of 16 percent. If that rate were to continue for the rest of the year, 8,100 businesses would be in Chapter 11 compared with 6,240 in 2007.

The jump in filings over the first three months of 2008 reversed a trend from late 2007, when filings shrank.

The number of Americans seeking bankruptcy fell in late 2005 and early 2006 after jumping ahead of the October 2005 law making it harder for people to erase debt.

In the two weeks before the new law, 630,000 Americans sought bankruptcy protection, bringing total filings in 2005 to a record 2.1 million. There were 590,500 filings in 2006 and 827,000 in 2007.

U.S. Economy: Employers Cut Most Workers Since 2003

Employers in the U.S. cut the most workers in five years last month, signaling that the economic contraction is deepening and that the Federal Reserve will continue to lower interest rates.

Payrolls shrank by 80,000, more than forecast and the third monthly decline, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent, the highest level since September 2005, from 4.8 percent.

This is the final blow, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. It's clear the U.S. economy is in a recession. That's going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.

Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with Chairman Ben S. Bernanke saying for the first time the U.S. may enter a recession.

Financial Markets

Treasuries climbed, with 10-year note yields falling to 3.47 percent at 4:20 p.m. in New York, from 3.59 percent late yesterday. Odds of a half-point rate cut at the Fed's April 29- 30 meeting rose to 40 percent from 20 percent yesterday, futures show. Stocks ended mixed, with the Standard & Poor's 500 Index up 0.1 percent at 1,370.40 while the Dow Jones Industrial Average slipped 0.1 percent to 12,609.42.

Workers' average hourly wages were 3.6 percent higher than a year earlier, the smallest increase since March 2006.

In a sign that investor concern about inflation is diminishing, U.S. debt that adjusts to inflation outperformed regular Treasuries. Regular 10-year notes yielded 2.30 percentage points more than similar-maturity Treasury Inflation Protected Securities, the least since March 27. The so-called breakeven rate reflects the rate of inflation that traders expect for the next decade.

The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79 forecasts in a Bloomberg News survey. Economists' forecasts ranged from a decline of 150,000 to a gain of 65,000.

If you're ever going to ring a bell on a recession, these numbers do it, Stuart Hoffman, chief economist at PNC Financial in Pittsburgh said in a Bloomberg Television interview. You have had job losses all year.

IMF Meeting

The job figures come a week before Bernanke and Treasury Secretary Henry Paulson meet their counterparts from the Group of Seven major industrial nations alongside the spring meetings of the International Monetary Fund in Washington.

IMF Chief Economist Simon Johnson said yesterday in a statement that the U.S. economy has slowed to a virtual standstill, hurting global growth prospects. A document featuring IMF forecasts obtained by Bloomberg News this week showed the fund characterized the U.S. financial crisis as the worst since the Great Depression.

Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. A survey from ADP Employer Services issued yesterday had projected private payrolls would rise by 8,000.

Labor revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three months coincided with the start of the Iraq War in 2003.

Bernanke Says U.S. Economy May Slip Into a Recession

Federal Reserve Chairman Ben S. Bernanke acknowledged for the first time that a U.S. recession is possible because homebuilding, employment and consumer spending will deteriorate.

It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly, Bernanke told Congress's Joint Economic Committee today. He also said the Fed's emergency loan to Bear Stearns Cos. followed a March 13 warning by the firm that it would have to file for bankruptcy the next day.

Bernanke, making his first extensive public comments since the Fed's decisions two weeks ago to back the takeover of Bear Stearns and lower interest rates by 0.75 percentage point, is trying to fend off criticism of the deal while struggling to prevent a deeper economic slump. He said he thought long and hard about the decision, and doesn't anticipate the need for a similar rescue of another company.

While the Fed expects the economy to return to its long- term growth pace in 2009, in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside, he said.

Treasury notes and stocks were little changed after Bernanke's remarks. The benchmark 10-year note yielded 3.59 percent at 12:26 p.m. in New York.

Bleaker Outlook

This is a much more pessimistic assessment of the economy than what the Fed had three months ago or six months ago, said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, who previously worked as a senior economist in Congress. Certainly, the Fed and the capital markets have been surprised the economy has slowed so quickly.

The Fed, in an emergency decision on Sunday, March 16, voted to authorize a loan against $29 billion of Bear Stearns assets, including mortgage-backed securities, so JPMorgan Chase & Co. would buy the company.

Bernanke, questioned by lawmakers about putting taxpayer money at risk, expressed confidence the Fed won't lose money on the Bear Stearns deal. The Fed last week said JPMorgan will shoulder the first $1 billion of any losses.

I feel reasonably confident that we'll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that, Bernanke said.

Bear Collateral

The Fed chief also said the central bank's investment adviser, BlackRock Inc., has gone through those assets, and they are confident, or at least reasonably confident, that we will be able to recover the full amount if we dispose of these assets on a measured basis, rather than to sell them all at once.

The central bank also expanded its powers last month by opening up lending directly to Wall Street investment banks. In addition, the Fed cut the interest rate on loans to banks, and now securities firms, by a quarter point.

Two days later, the Federal Open Market Committee cut the main lending rate to 2.25 percent and said the outlook for economic activity has weakened further. Officials also showed renewed concern about inflation, making a smaller reduction than traders anticipated. Two policy makers dissented in favor of less aggressive action.

The Fed agreed to the emergency Bear Stearns loan to prevent a disorderly failure of the company and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy, Bernanke said.

Senate Probes

The Senate's banking and finance committees have started separate inquiries into the transaction, raising questions about the role of the regulators in facilitating it.

With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions and could have severely shaken confidence, the Fed chief said.

Bernanke said that the U.S. economy is going through a very difficult period.

The U.S. economy grew at an annual pace of 0.6 percent from October to December. Growth probably slowed to a 0.2 percent annual rate in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News.

Monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year, Bernanke said. Policy makers expect that the rate cuts and financial-market actions this year will help to promote growth over time and to mitigate the risks to economic activity.

Fed Statement

He didn't repeat the expectation of moderate growth from the FOMC's March 18 statement.

Traders expect the Fed to lower the overnight interbank lending rate by a quarter-point at the next FOMC meeting April 29-30, based on futures prices.

Separately today, the International Monetary Fund cut its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression. Also, orders to U.S. factories fell more than forecast in February, a Commerce Department report showed.

Treasury Secretary Henry Paulson told Bloomberg Television in an interview from Beijing that the IMF numbers appear overblown to me. He indicated a willingness to consider congressional plans to stem foreclosures by expanding government guarantees for mortgages.

Inflation `Concern'

Bernanke said that inflation has also been a source of concern, with higher commodity prices and the weaker dollar. At the same time, he said the Fed expects inflation to moderate in coming quarters, echoing the FOMC statement. A leveling out of commodity prices and slower global growth will help, Bernanke said.

The Fed's preferred inflation gauge, which excludes food and energy costs, has increased at least 2 percent from the year earlier, the upper end of officials' long-term projections, for five straight months through February. Bernanke said the rate has edged down recently.

Senator Charles Schumer, the New York Democrat who chairs the House-Senate panel, said today that the Fed's actions on Bear Stearns provided some much-needed breathing room to the financial markets.

But there are many legitimate, looming, and unanswered questions about what happened both before and after the Bear Stearns action, Schumer said.

U.S. Stocks Rise; Bear Stearns, Tiffany, Monsanto Shares Climb

U.S. stocks rallied to the highest level this month as JPMorgan Chase & Co.'s increased bid for Bear Stearns Cos. and a gain in home sales boosted speculation the economy will recover from $200 billion in credit losses.

Bear Stearns, which almost collapsed before the Federal Reserve helped broker a takeover, nearly doubled after JPMorgan raised its offer to about $10 a share from $2.52. Tiffany & Co., the second-largest luxury jewelry retailer, climbed the most in more than two years on better-than-forecast earnings. Monsanto Co., the biggest seed producer, posted its steepest advance since January after UBS AG advised buying the shares.

The Standard & Poor's 500 Index added 20.37 points, or 1.5 percent, to 1,349.88 as nine of its 10 industry groups advanced. The Dow Jones Industrial Average increased 187.32, or 1.5 percent, to 12,548.64. The Nasdaq Composite Index gained 68.64, or 3 percent, to 2,326.75. Nine stocks rose for every two that fell on the New York Stock Exchange.

It appears that people are interested in buying stocks every time there's just a whiff of good news, John Carey, who manages $13 billion at Pioneer Investments in Boston, said in an interview with Bloomberg Radio. We're starting from a fairly modest level of valuations in this downturn and so perhaps people are right in suggesting that downside is limited.

The S&P 500 trimmed its loss for the year to 8.1 percent and posted its first back-to-back gains of the month. The market extended its rally after an industry report showed existing home sales climbed in February for the first time in seven months. Asian shares advanced, led by Taiwan's biggest increase in six weeks. All major European markets were closed for a holiday.

Bonds, Gold Drop

Yields on Treasury securities climbed, the dollar advanced against the yen, and gold fell as traders pared bets on additional interest-rate cuts by the Federal Reserve.

Bear Stearns climbed $5.29, or 89 percent, to $11.25. JPMorgan will exchange stock worth about $10 for each Bear Stearns share, the New York-based firms said in a statement. Under the terms of the deal the two firms struck March 16, the takeover price had been $2.52 a share, based on last week's closing price.

Banks, brokerages and insurance companies in the S&P 500 rose 0.7 percent as a group, extending their advance in the past week to 14 percent. Citigroup Inc., the biggest U.S. bank, contributed the most to the gain, adding 77 cents, or 3.4 percent, to $23.27.

A lot of market turns tend to happen on watershed events such as the takeover of Bear Stearns, said Greg Woodard, a portfolio strategist at Manning & Napier in Fairport, New York, which oversees $18 billion. The increased bid holds out hope for a quick culmination, rather than a long, drawn-out battle with the shareholders.

$150 Billion in Mortgage Bonds

Financial shares also gained after Federal Home Loan Banks were freed to increase their purchases of mortgage-backed bonds by about $150 billion, the latest in a series of government initiatives to resuscitate lending by financial institutions.

Lehman Brothers Holdings Inc. fell $2.01, or 4.1 percent, to $46.64 after being downgraded to perform by Oppenheimer & Co.'s Meredith Whitney. Whitney, who correctly predicted Citigroup would cut its dividend this year, cited a protracted challenging capital markets environment and abandoned her price target for Lehman.

Tiffany rallied $4.05, or 10 percent, to $42.65 after saying ongoing earnings excluding items were $1.27 in the fourth quarter, six cents better than the average analyst estimate in a Bloomberg survey. Fourth-quarter revenue was $1.053 billion, beating the $1.049 billion average estimate.

'Not That Bad Off'

Tiffany is bringing back to focus that the economy still is not that bad off, said Tom Wirth, senior investment officer at Chemung Canal Trust Co. in Elmira, New York, which manages $1.8 billion.

Monsanto climbed $7.13, or 7.3 percent, to $104.26 after UBS analyst Chris Shaw said results from the company's seed and agricultural productivity businesses may help boost the shares to $125 in the next 12 months.

Companies in the S&P 500 traded at 13.82 times estimated profit when the market opened, according to Bloomberg data. Index members last traded at a valuation of less than 14 times historic earnings in October 1990.

Sales of existing homes in the U.S. unexpectedly rose in February, easing concern credit restrictions and falling prices would hurt demand. Purchases increased 2.9 percent to an annual rate of 5.03 million, the National Association of Realtors said. Economists in a survey had forecast a decline of 0.8 percent.

Homebuilders Rally

D.R. Horton Inc., the second-largest U.S. homebuilder, climbed $1.02 to $16.70, leading gains in 14 of 15 homebuilders in S&P indexes. The group's 5.2 percent advance extended its climb in the past week to almost 26 percent.

Home-improvement specialists Home Depot Inc. and Lowe's Cos. led retailers in the S&P 500 to a 3.5 percent gain. Home Depot climbed $1.20 to $29.26. Lowe's added $1.06 to $24.29.

CIT Group Inc. surged $3.40, or 35 percent, to $13.03. The commercial finance company that tapped $7.3 billion of emergency credit lines last week climbed after Stifel Nicolaus & Co. said it may be a takeover target.

Walgreen Co. added $1.83 to $38.61. The largest U.S. drugstore chain's second-quarter profit was bigger than analysts estimated because of increased sales of prescription drugs. Walgreen's net income of 69 cents a share beat the average analyst estimate of 67 cents a share in a Bloomberg poll.

Best Buy, HCP

Best Buy Co. rose 86 cents to $43.27. The largest U.S. consumer-electronics retailer, which is gaining market share from Circuit City Stores Inc., is benefiting from growth in sales of video-game software, Barron's reported. Best Buy shares may climb to $52 once investors overcome fears of how the retailer will fare in a recession, Barron's reported, citing unnamed analysts.

Commodity Prices Plunge, End Week With Biggest Drop Since 1956

Commodities plunged, capping the biggest weekly drop in five decades, on speculation that slower global growth will curb demand for energy, metals and grains.

The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, marking the steepest drop since at least 1956. After reaching records this week, gold plummeted as much as $129 an ounce and crude oil tumbled more than $13 a barrel.

We started to see a speculative frenzy in commodities, said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio. Growth is going to be quite muted, and that does not bode well for commodities.

Slowing global growth signals commodity demand will soften, the International Monetary Fund said this week.

The weighted UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials had gained 20 percent this year before the week began, reaching a record on Feb. 29. The gauge climbed in each of the past six years, more than tripling in value.

The rally may be coming to an end as the U.S., the world's largest economy, slips into a recession, damping global expansion, said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois.

Commodities were a bubble that is now bursting, Kaplan said. Prices will go lower than you can believe.

The CRB index fell 6.56, or 1.7 percent, to 381.74 in New York. On March 17, the gauge plunged 4.6 percent, the most in five decades. It dropped 4.1 percent yesterday.

`Recession Fears'

Global-recession fears are causing selling pressure in all commodities, said James Mound, head analyst for MoundReport.com, a commodities newsletter, in Palm Coast, Florida. The markets are focusing on want-based items instead of need-based items.

Investor demand for commodities led to a buying orgy, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, told clients on March 10. Commodities have all gone parabolically higher on frenzied money flow, he said.

A slumping dollar and less-attractive returns on equities and bonds boosted the appeal of commodities as a hedge against inflation and an alternative investment, said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. Investors are now selling raw-material futures to raise cash, he said, citing demands for investors to put up more collateral.

Margin Calls

There's a lack of liquidity to cover margin calls, Smith said. There's a panic in the market that's taken hold very quickly. We could see commodity prices continue to tumble.

Gold futures for April delivery fell $25.30, or 2.7 percent, to $920 an ounce on the Comex division of the New York Mercantile Exchange. The price reached a record $1,033.90 an ounce on March 17. The precious metal plunged $59 yesterday.

The dollar has rebounded this week from a record against the euro and a 12-year low against the yen.

Crude-oil futures for May delivery fell 70 cents, or 0.7 percent, to $101.84 a barrel on the Nymex. The price soared to a record $111.80 a barrel on March 17.

Oil probably will fall toward $90 a barrel this spring as the slowing U.S. economy encourages traders to exit commodity markets, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in a report today.

The oil-price slump, along with all the other commodities, resulted from the dollar staging a rally, so the large funds flowed out of the commodities complex, said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. Investors have found a trigger to focus more on fundamentals.

Cocoa plunged more than 9 percent today, and wheat tumbled 8.1 percent. Soybeans and corn dropped almost 4 percent. Among the 26 commodities in the UBS Bloomberg index, only cattle and hogs gained this week.

There are 361 commodity funds that had $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.

The money flowing into commodities was absolutely enormous, Proudlock said.

Dollar Falls to Lowest Since '95 Versus Yen Before Retail Sales

The dollar fell to the lowest since 1995 against the yen on speculation U.S. retail sales growth slowed, adding to evidence the economy is entering a recession.

The currency also slid to a record low against the euro as brokerages including ABN Amro Holdings NV and Westpac Banking Corp. said Arab nations in the Middle East may consider ending their fixed exchange rates and selling U.S. assets. The dollar traded near an all-time low versus the Swiss franc as U.S. President George W. Bush said the dollar is adjusting and its decline isn't good tidings.

We are in a clear bear trend for the dollar, said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Mizuho Financial Group Inc., Japan's second-largest publicly traded lender. Signs that retail sales are falling off will expose the dollar to further declines.

The U.S. currency fell to 101.68 yen at 9:37 a.m. in Tokyo after reaching 101.10, the lowest since December 1995, from 101.79 in late New York yesterday. The dollar traded at $1.5527 per euro from $1.5551. It touched $1.5573 per euro, the weakest level since the European currency's 1999 debut. The euro fell to 157.82 yen from 158.30.

The dollar bought 1.0158 Swiss francs, just above a record low of 1.0128 reached yesterday. The British pound was little changed at $2.0268. The Australian dollar rose to 93.57 U.S. cents from 93.33 cents after data showed companies in the Southern Hemisphere country hired extra workers for a record 16th month. The Singapore dollar rose to a record of S$1.3826 against the U.S. currency.

`Real Trouble'

U.S. retail sales rose 0.2 percent in February after a 0.3 percent rise in the previous month, according to a Bloomberg survey. The Commerce Department will release the data later today in Washington. Crude oil in New York touched $110.20 a barrel, the highest intraday price since the futures began trading in 1983.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.20 yesterday and was last at 72.30.

The dollar looks in real trouble and there is no obvious resistance level against the euro, said Greg Gibbs, a currency strategist at ABN Amro in Sydney. I don't think you can pick a level for where it will stop.

Middle East, China

The Central Bank of Jordan is reducing the amount of dollars in its foreign reserves because of the declining value of the U.S. currency and the need to service debt, Deputy Governor Faris Sharaf said yesterday in an interview in Amman, Jordan. Sharaf would not provide a break down of the bank's reserves, totaling around $7 billion. The Jordanian dinar has been pegged to the dollar since October 1995 at an average price of 0.709 fils.

A Qatar central bank official denied an Emirates Business 24/7 report that Gulf-region policy makers will consider currency revaluation when they meet next week. The dollar's 10 percent drop against the euro last year has stoked inflation in the region.

China wants to invest more of its reserves abroad, Minister of Commerce Chen Deming said yesterday. China's reserves are the world's largest at $1.5 trillion.

We're probably going to remain in the situation where long-term money moves away from the dollar, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. `There is a lot of discussion in the market about China. There's also a lot of discussion about the Middle East dropping their dollar pegs. They're looking for an alternative store of wealth.

The U.S. currency may weaken below 100 yen, he said.

`Adjusting'

U.S. President George W. Bush said the dollar is adjusting. and its decline isn't good tidings for proponents of a strong dollar. Bush also reiterated his commitment to a strong dollar, in an interview with the U.S. Public Broadcasting Service to be aired later today.

Bush's comments were about as lukewarm as you can get, said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. Some may have interpreted his `adjusting' comment as tacit acceptance that we're in a broad-based dollar devaluation.

The dollar also fell as firms from Citigroup Inc. to Goldman Sachs Group Inc. said yesterday the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

U.S. Rates

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 76 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The Fed's measures are not a panacea, more like an aspirin for the dollar, analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note. There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets.

The dollar may decline to $1.57 per euro this month, according to a Merrill Lynch forecast released March 6.

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.

$100 oil hurts, just like a recession

Economists, once so dismissive of pricey crude's economic impact, say it's going to hurt.

Five months ago many economists said high oil prices wouldn't hurt the economy - now they're eating their words.

Back in October, when oil prices were near $90 a barrel and the economy was still humming along economists said high oil prices shouldn't cut into economic growth. The economy used oil more efficiently than it did in the 1970s, and spending on gas was just a small percent of people's budget, the experts said.

Fast forward to March and you've got a sputtering economy, and economists saying $105 oil deserves a big part of the blame.

Even the White House is beginning to sound more pessimistic, predicting Friday that the the economy could contract.

You have a very significant restraint on consumer spending, said Chris Lafakis, an associate economist at Moody's Economy.com, an economic consultancy. It acts as a tax would.

Lafakis said consumers spend an extra $5 billion each year for each $1 increase in the price of crude.

When economists were predicting that oil wouldn't negatively impact the economy, they based their assertion on a price of about $80 a barrel.

But if oil stays at $100 a barrel for the next 12 months, consumers will have shelled out an extra $100 billion on oil by next year. That's an extra $100 billion not being spent at the mall, mega-mart or multiplex.

The entire stimulus package could be drained by higher energy costs, Lafakis said, referring to the $120 billion lawmakers will refund to taxpayers in an effort to keep the economy out of recession. That has the potential to turn a mild recession into something more dark.

Worse to come

Of course, high oil prices are not the only thing weighing on consumer spending, which accounts for about two-thirds of all U.S. economic activity. Declining home values mean people can't access cash through a home equity loan or profit from higher sale prices. In addition, the economy is shedding jobs, and unemployed people tend to spend less money.

On its own, $100 oil wouldn't pull the economy into recession, said Beth Ann Bovino, a senior economist at Standard and Poor's. But given the other factors, it's just another shoe to drop.

Both Bovino and Lafakis have similar predictions for the economy - a mild recession lasting the first and second quarters of 2008, then a modest recovery beginning in the second half of this year.

However, if oil goes to $115 or $120 a barrel - certainly not an outlandish thought given that crude prices have nearly doubled over the last 12 months - then those bets may be off.

Bovino said $115 oil, along with worsening conditions in the credit and foreign investment market, could be enough to keep the economy in recession through the first part of 2009.

It would sure give the pessimistic forecast more credibility, she said.

U.S. Stock-Index Futures Decline; Intel, Citigroup Shares Drop

U.S. stock-index futures fell after Intel Corp. said lower chip prices will hurt earnings and a Merrill Lynch & Co. analyst predicted Citigroup Inc. may report $18 billion in first-quarter credit writedowns.

Intel, the world's largest computer-chip maker, dropped after cutting its profitability forecast because of an industry glut of flash-memory. Citigroup retreated on Merrill's forecast for a first-quarter loss at the biggest U.S. bank. Technology and financial stocks led European shares to a fifth day of declines and Asia's regional benchmark slumped for a fourth day.

Standard & Poor's 500 Index futures expiring this month decreased 8 to 1,323.9 as of 8:31 a.m. in New York. Dow Jones Industrial Average futures lost 61 to 12,191. Nasdaq-100 Index futures fell 9.75 to 1,727.

Intel is an indicator, said Franck Hennin, who helps oversee $6.1 billion at Richelieu Finance in Paris. We have to survey technology stocks today.

Futures indicated the Nasdaq Composite Index and Dow average will fall for a fourth straight day and the S&P 500 will drop for the fourth time in five days. The Nasdaq has retreated 15 percent this year, the biggest decline among the three equity benchmarks, on growing concern that profit growth at Intel, Apple Inc., Google Inc. and other technology companies will slow as $181 billion in credit losses restrain the global economic expansion.

Most U.S. stocks gained yesterday as record oil and gold prices spurred a rally in commodity producers, outweighing declines in technology and financial shares.

Intel, Micron

Intel lost 61 cents to $19.40 today. The company said gross margin, the percentage of sales remaining after deducting the cost of production, will be 54 percent, down from the 56 percent it predicted in January. Intel cited lower-than-expected prices of chips that store data in cameras and music players for the reduced forecast.

Brokerages including Goldman Sachs Group Inc. and UBS AG lowered their earnings estimates for Intel on concern flash- memory chips will undermine its main business of making computer processors.

Google, owner of the most popular Internet search engine, dropped $3.52 to $453.50. Apple, maker of the iPod media player, lost 83 cents to $120.90.

Citigroup declined 59 cents to $22.50. Merrill's Guy Moszkowski said he expects $15 billion of writedowns related to the company's holdings of subprime mortgages and collateralized debt obligations and another $3 billion from leveraged loans, bad consumer debt, real-estate lending and other investments.

Citigroup Estimates

The New York-based analyst slashed his first-quarter estimate for Citigroup to a loss of $1.66 per share from a profit of 55 cents a share and cut his 2008 profit forecast to 24 cents a share from $2.74.

Separately, the head of an investment fund controlled by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum said Citigroup may need additional capital from outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase.

Bank of America Corp. dropped 41 cents to $39.18. Wachovia Corp. declined 41 cents to $30. Merrill also cut profit estimates for the second- and fourth-largest U.S. banks.

Goldman Sachs Group Inc. and three of the securities firm's smaller rivals had their first-quarter earnings estimates cut by Wachovia analyst Douglas Sipkin on expectations the value of mortgage assets will continue to fall. Sipkin is at least the 10th analyst in the past two weeks to reduce profit estimates for the biggest investment banks.

Goldman dropped $1.09 to $163.99. Bear Stearns Cos. rose 77 cents to $78.09 in Germany. Lehman Brothers Holdings Inc. retreated 41 cents to $48.20. Morgan Stanley shares didn't trade in Europe.

Best Buy, Barnes & Noble

Best Buy Co. fell $1.27 to $42.01 after Bank of America Corp. downgraded the biggest U.S. electronics chain to neutral from buy. The absence of new television technologies in 2008 will lead to lackluster demand, analyst David Strasser wrote in a note to clients.

Barnes & Noble Inc. may be active. The biggest U.S. bookstore chain forecast profit that may miss analysts' estimates because of fewer bestsellers like J.K. Rowling's record-breaking Harry Potter and the Deathly Hallows.

Barr Pharmaceuticals Inc. rallied $4.83 to $50.50. Bayer AG, Germany's biggest drugmaker, said a federal judge in New Jersey invalidated a patent on the contraceptive Yasmin in a victory for generic-drug maker Barr.

Federal Reserve Chairman Ben S. Bernanke will speak today on mortgage foreclosures at the Independent Community Bankers of America's National Convention and Techworld, in Orlando, Florida. Fed Board Vice Chairman Donald Kohn and other regulators are scheduled to testify before the Senate Banking Committee on conditions in the banking system.

The MSCI World Index decreased 0.3 percent. Europe's Dow Jones Stoxx 600 Index lost 0.9 percent, while the MSCI Asia Pacific Index declined 0.4 percent.

Fisher Says U.S. to Avoid `Prolonged' Slump in Growth

Federal Reserve Bank of Dallas President Richard W. Fisher said that the U.S. will probably see slower economic growth rather than a deeper downturn.

The most likely scenario is that the U.S. will avoid a prolonged period of negative economic growth, Fisher said during an interview today before a speech in Fort Worth, Texas, without mentioning the term recession. He also said he's hearing increasing expressions of concern about inflation from executives he speaks with, which got his attention.

Fisher spoke after data this week showed the U.S. is moving closer to a recession, while inflation is accelerating at the same time. He said today that the slowdown in growth will probably last for a couple quarters and warned that it may be difficult to quickly raise interest rates.

Fed officials anticipate growth of 1.3 percent to 2 percent this year, down from 2.5 percent in 2007. Two members of the panel charged with dating U.S. economic cycles said yesterday that it's too early to decide whether the U.S. is in recession.

We have to be wary of the fact that we are navigating through an extremely narrow passageway here: with on the one side of us inflationary shoals and on the other the risk of weaker economic growth, said Fisher, who alone voted against the Federal Open Market Committee's Jan. 30 decision to lower the benchmark rate by half a point.

`Very Best'

The Fed is doing its very best to find the right balance between the concerns about both growth and inflation, Fisher said. The central bank must be careful not to stir inflation embers, he said in his remarks today to the Petroleum Club of Fort Worth. Business executives have relayed concerns about building cost pressures, Fisher said.

Policy makers last month lowered their benchmark rate by 1.25 percentage point to 3 percent, with an emergency reduction of three-quarters of a point Jan. 22. The moves were the fastest easing of monetary policy in two decades.

The Fed's rate cuts may be more difficult to reverse in practice than in theory, said Fisher, 58. The former hedge fund manager, U.S. trade official and Senate candidate became head of the Dallas Fed in April 2005.

Minutes of the Fed's Jan. 9 and Jan. 21 conference calls and Jan. 29-30 meeting showed this week that some officials may favor a rapid reversal of rate cuts when the economy stabilizes.

`Bit Precarious'

It just seems to me to put yourself in that position where one might have to shift gears suddenly is a bit precarious, Fisher said today. The ability to raise rates quickly if the mood has shifted may be a more difficult thing to do in practice than in theory, he said.

The minutes also showed officials judged relatively low interest rates may be needed for some time to counteract the faltering economy. Data since the Jan. 30 meeting showed payrolls fell for the first time in four years in January, and private reports indicated a contraction in manufacturing.

The most likely scenario is slower economic growth and yet not prolonged negative activity, Fisher said. We have an anemic economy right now, he said.

The Philadelphia Fed's general economic index fell more than forecast this month to minus 24, the lowest level since February 2001, a report showed yesterday. The Conference Board's gauge of leading indicators dropped 2 percent in the last six months, which the group says can be one of the reasonable criteria for a recession warning.

The National Bureau of Economic Research's business cycle dating committee monitors payrolls, industrial production, sales and incomes in determining whether the economy has entered a recession.

More Cuts Expected

Traders place 100 percent odds that the Fed will cut the benchmark rate by at least half a point by the end of the next meeting on March 18, futures prices show. Policy makers have lowered the target rate for overnight loans between banks by 2.25 percentage points since September, to 3 percent.

Recent inflation figures were not encouraging, he added. He said he's talked to 30 chief financial officers over the past few weeks and has heard more concern about inflation than in the past.

Consumer prices rose 0.4 percent from December, spurred by food and energy costs, rents and clothing. Costs excluding food and energy climbed 0.3 percent, the most since June 2006, the Labor Department said two days ago. From a year earlier, consumer prices rose 4.3 percent, approaching a 16-year high. The core rate was up 2.5 percent.

Fisher told reporters after the speech that he questions whether inflation expectations are well anchored, and that the U.S. economy is in an anemic condition.

He added that there's no doubt there's something wrong in credit markets, and certain excesses may take years to unwind.

Paulson, Bernanke: No recession in '08

Treasury secretary and Fed chairman say rate cuts and rebates should keep economy out of downturn.

Treasury Secretary Henry Paulson, left, and Fed Chairman Ben Bernanke believe the U.S. will avoid a recession.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson both acknowledged problems in the U.S. economy on Thursday, but both said they believe the nation will avoid falling into recession.

In prepared testimony before the Senate Banking Committee, the head of the central bank and the Bush administration's point man on the economy said that steps taken already this year will be able to keep the economy moving forward despite the continued downturn in housing and troubles in credit markets.

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," said Bernanke in prepared remarks, referring to a series of Fed interest rate cuts and a $170 billion tax rebate and stimulus plan signed by President Bush Wednesday.

The Fed last month made two deep rate cuts: three-quarters of a percentage point at an emergency meeting, followed by half a point eight days later.

Bernanke said Thursday that the Federal Open Market Committee, its rate-setting body, was ready to act again if further economic reading justify it.

"The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said.

Paulson echoed frequent comments he's made in recent weeks that he expects slower growth but no recession, even with the problems faced by the economy.

"The U.S. economy is fundamentally strong, diverse and resilient, yet after years of unsustainable home price appreciation, our economy is undergoing a significant and necessary housing correction," he said in his prepared remarks. "The housing correction, high energy prices and capital market turmoil are weighing on current economic growth."

A number of closely watched economic readings in recent weeks, including the January jobs report and the reading on business activity in the service sector, have convinced a growing number of economists that the economy has already into recession.

Senate Banking Chairman Christopher Dodd, D-Conn., opened the hearing by saying that the economy was at the greatest risk of any time since the Sept. 11 terrorist attacks. He said further steps need to be taken, adding that the slowdown is due to a crisis of confidence among both consumers and investors.

AIG's Sullivan May Find Job at Stake After Writedown

American International Group Inc. Chief Executive Officer Martin Sullivan may find his job at stake after an accounting lapse led to a bigger-than-forecast drop in the value of the company's holdings.

AIG rebounded in New York trading today after saying losses from so called credit-default swaps will not be material. The company fell the most in two decades yesterday after disclosing the contracts, sold to protect fixed-income investors, declined four times more than a previous estimate. Sullivan, 53, had assured investors in December that writedowns tied to the U.S. housing market were manageable.

You have to question Sullivan's leadership ability, said Rose Grant, who helps manage $2 billion in assets including AIG shares for Boston-based Eastern Investment Advisors. People are frustrated with the performance of the stock, basically throwing in the towel. His job definitely could be in jeopardy.

Citigroup Inc. and Merrill Lynch & Co. removed their CEOs last year after they underestimated losses tied to subprime mortgages. AIG, which appointed Sullivan three years ago after accounting and sales probes led to the ouster of Maurice Hank Greenberg, said it still doesn't know what the contracts were worth at the end of 2007. The company's market value has fallen about 30 percent during Sullivan's tenure.

AIG gained $1.71, or 3.8 percent, to $46.45 at 11:33 a.m. in New York Stock Exchange composite trading. Yesterday the New York-based insurer tumbled 12 percent, the biggest daily decline since the market crash of Oct. 19, 1987.

Possible Loss

Auditor PricewaterhouseCoopers LLP found material weakness in AIG's accounting for the contracts, called credit- default swaps, the company said in a regulatory filing yesterday.

The $4.88 billion decline in value of the credit-default swaps may have wiped out AIG's fourth-quarter profit, Citigroup analyst Joshua Shanker said yesterday in a research note. Fitch Ratings said in a statement that it may lower the insurer's AA credit rating.

The insurer believes that any losses from meeting obligations on its credit-default swap portfolio will not be material to the company, AIG said in a statement today.

The company said in the filing yesterday that it has procedures to appropriately determine the fair value of its holdings. Sullivan declined to be interviewed, AIG spokesman Chris Winans said.

AIG's financial products unit issues contracts that promise to reimburse investors for losses tied to $505.5 billion of securities as of Nov. 25, including corporate debt, European mortgages and collateralized debt obligations, which bundle loans.

New Chief

Greenberg ran AIG for 38 years until he was forced to retire in March 2005, two months before then-New York State Attorney General Eliot Spitzer sued and accused Greenberg of ordering improper transactions to hide losses and inflate reserves. Greenberg has maintained he did nothing wrong.

Sullivan steered the insurer through a $1.64 billion settlement of probes started by Spitzer and federal regulators, and restatements of 2000 to 2005 results that cut profit by $3.4 billion. He also led an overhaul of AIG's accounting and regulatory systems. The company blamed those restatements on weaknesses in internal controls that it said were found after Greenberg left. PricewaterhouseCoopers, AIG's auditor for more than two decades, was rehired in October.

It is incomprehensible that yet once again, this company, its board, its CEO and CFO, and its independent auditors are saying the company doesn't have adequate controls, said Lynn Turner, former chief accountant at the U.S. Securities and Exchange Commission and now on the board of Guidance Software Inc. and the Colorado Public Employees' Retirement Association. These people should all be held accountable.

Legal Consequences

Shareholder lawsuits and an SEC investigation may follow, said Tamar Frankel, a law professor at Boston University specializing in financial regulation. A material weakness is a really red flag for the SEC, she said.

SEC spokesman John Nester declined to comment. David Nestor, a PricewaterhouseCoopers spokesman, and Ken Frydman, a spokesman for Greenberg, declined to comment.

Sullivan's accounting overhaul didn't catch the latest accounting weakness because either these are new problems or more likely, these are problems that existed before and the regulators didn't go far enough, said Edward Ketz, a Pennsylvania State University accounting professor.

Net Income

AIG's net income, which set a record under Sullivan in 2006, fell 27 percent in 2007's third quarter on losses linked to the U.S. housing slump, including a $352 million reduction in the value of the derivatives. The company, which has units that originate, insure and invest in subprime mortgages or securities, is scheduled to announce fourth-quarter results later this month.

Investors eventually will look back at yesterday's announcement and conclude they overreacted, said David Katz, chief investment officer for New York-based Matrix Asset Advisors, who supports Sullivan.

The things that he can control, we're comfortable he's done a good job managing them, said Katz, whose firm manages $1.6 billion, including 845,000 AIG shares. The subprime fallout was part of the hand he was dealt.

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.

Fed Cuts Interest Rate to 3% as U.S. Growth Falters

The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession.

Downside risks to growth remain, the Federal Open Market Committee said in a statement after meeting today in Washington. In a reference to the volatility of the past five months, the Fed added that financial markets remain under considerable stress and credit has tightened further for some businesses and households.

The dollar tumbled and two-year Treasury notes rose after the decision as traders anticipated another reduction at the Fed's March meeting, if not before. The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990. The Standard & Poor's 500 Index closed 0.5 percent lower and is down 7.7 percent this year.

They're going full-bore trying to keep the economy from recession, said David Resler, chief economist at Nomura Securities International Inc. in New York. Conditions in the market place are the driving force right now.

Hours before the decision was announced, the Commerce Department reported that gross domestic product grew at an annual pace of 0.6 percent in the fourth quarter.

The Fed has gotten religion and is going do what they need to do, said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina.

Readiness to Respond

Fed officials said they will continue to assess financial markets and the economy and will act in a timely manner as needed.

Recent information indicates a deepening of the housing contraction as well as some softening in labor markets, the central bank's statement also noted.

Chairman Ben S. Bernanke and the Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, to 3.5 percent from 4 percent.

Dallas Fed President Richard Fisher dissented from today's decision, preferring no change.

Policy makers presented revised three-year economic forecasts at this week's gathering. The Fed will release the projections along with minutes of the meeting on Feb. 20.

Today's Commerce Department figures showed the Fed's preferred inflation gauge rose at a 2.7 percent annualized rate last quarter. Fed officials in October forecast the personal consumption expenditures price index minus food and energy would rise 1.6 percent to 1.9 percent in 2010, offering a measure of their longer-term inflation objective.

Inflation

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully, the Fed said in today's statement.

Wall Street firms including Morgan Stanley, Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc. are forecasting the first recession since 2001 this year. Still, executives at firms such as Dow Chemical Co. said they don't detect a downturn yet, while risks remain.

This year will be slower than 2007, Andrew Liveris, the chairman and chief executive officer of Dow Chemical, said yesterday. It is an inconvenience, not a catastrophe.

United Parcel Service Inc., Caterpillar Inc. and General Electric Co. are relying on gains overseas to counter slower growth at home.

Evolution Since August

Fed policy makers have struggled since August to contain the economic damage sparked by the worst housing recession in a quarter-century. The world's largest banks and securities firms have recorded more than $133 billion in asset writedowns and credit losses since the beginning of 2007, which analysts blamed on weak and fragmented supervision and poor credit analysis.

The Fed's move lowers the cost of financing for Wall Street which is struggling to raise capital after being hit with writedowns not seen since the Great Depression, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Foreclosure rates rose 75 percent in 2007 as a record amount of adjustable-rate loans to borrowers with weak or limited credit histories reset to higher rates, RealtyTrac Inc. data show. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November from a year earlier, the 11th consecutive decline, the S&P/Case-Shiller home-price index showed yesterday.

We are in a historic housing bust right now, comparable to that of the Great Depression, said Robert Shiller, chief economist of MacroMarkets LLC in Madison, New Jersey, who co- founded the house-price index. The unraveling of that has unpredictable consequences.

Delay in 2007

Fed officials waited until September to cut the benchmark lending rate, even though premiums on corporate bonds and lower- rated securities began to climb in late June.

By December, Fed policy makers had cut the benchmark lending rate 1 percentage point, yet still described the policy rate as somewhat restrictive as they deliberated whether to cut again that month, minutes show.

The government's December payroll report, which showed a loss of 13,000 private sector jobs, the first decline since July 2003, began to reshape Fed officials' views about risks.

Bernanke used a Jan. 10 speech to update the public. The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced, he said, breaking with the Fed's statement a month earlier which only expressed uncertainty about the outlook. He pledged substantive additional action as needed.

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

Global Recession Risk Grows as U.S. `Damage' Spreads

The U.S. economy may already be in recession; other countries might not be far behind.

Japan, Britain, Spain and Singapore, which together represent about 12 percent of the world economy, are vulnerable as fallout from the U.S. worsens their economic weakness. Even emerging markets, including China, are likely to suffer as exports to the U.S. wane.

The result: Global growth may decelerate close to the 3 percent pace economists deem a worldwide recession, from a 4.7 percent rate in 2007. Some form of global recession is inevitable at some point, former Federal Reserve Chairman Alan Greenspan said in a speech in Vancouver last week.

The developing slump puts pressure on central bankers in Japan, the U.K. and the euro region to follow the lead of Fed Chairman Ben S. Bernanke, who last week accelerated interest- rate cuts in the U.S. with an emergency move to lower the benchmark rate by three-quarters of a percentage point. Policy makers may follow that with another cut of as much as half a point after a two-day meeting that starts tomorrow, futures trading indicates.

The odds are shifting toward a more significant global monetary easing, says Richard Berner, co-head of global economics for Morgan Stanley in New York.

Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London, says growth in the first half of 2008 may be the weakest since 2002 and maybe even 2001, during the last global downturn. The economy is slowing everywhere, he says.

Stocks Fall

Stocks retreated in Europe and Asia today, led by commodity producers and banks, on growing concern the global economy is slowing and companies may report more losses linked to subprime mortgages. U.S. index futures dropped and Treasury notes rose for a second day.

A worldwide recession doesn't require a global contraction in output, which rarely happens; economists at the International Monetary Fund say it would take a slowdown in global growth to 3 percent or less. By that measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002.

The contagion from the U.S., which according to the IMF represents about 21 percent of the global economy, is spreading via multiple channels. Less spending by American consumers and companies reduces demand for imported goods. The meltdown of the U.S. subprime-mortgage market has pushed up credit costs worldwide and forced European and Asian banks to write down billions of dollars in holdings. Tumbling U.S. stock prices are dragging down markets elsewhere.

`Collateral Damage'

We'll see more collateral damage, says Allen Sinai, chief economist at Decision Economics in New York. The risk of a global recession is rising.

Such a catastrophe, while increasingly possible, isn't yet probable, economists say. Sinai puts the odds at 20 percent. Nariman Behravesh, chief economist at Global Insight in Lexington, Massachusetts, reckons it's about 30 percent.

The global implications of a U.S. recession dominated discussions last week at the World Economic Forum in Davos, Switzerland. In Washington, the IMF postponed publication of its latest world economic forecast, originally due Jan. 25, to take into account recent market turbulence.

Japan's economy is particularly at risk. Its housing market is slumping as stricter building-permit rules drag home starts to a four-decade low.

Tokyo Steel

A drop in construction demand led Tokyo Steel Manufacturing Co., the nation's biggest maker of steel girders, to lower its profit forecast Jan. 22.

It's highly likely Japan is already in a recession or will enter one this quarter, Tetsufumi Yamakawa, chief Japan economist at Goldman in Tokyo, wrote in a report published today.

The yen's 13 percent rise versus the dollar in the last six months is also taking a toll. The Japanese currency reached a 2 1/2-year high of 104.97 to the dollar last week. That is near the break-even point for Japan's exporters, who say they can remain profitable as long as the currency is weaker than 106.6, according to a government survey.

Kozo Yamamoto, head of the ruling Liberal Democratic Party's monetary policy panel, urged the Bank of Japan to cut its benchmark interest rate, already the lowest in the industrialized world at 0.5 percent.

Concerns over a recession are emerging not only in the U.S., but in Japan as well, Yamamoto said in a Jan. 23 interview. The BOJ should cut rates back to zero immediately.

Credit Crunch

Singapore may already be in a recession. Its economy contracted for the first time in 4 1/2 years in the fourth quarter as factory output slowed and electronics exports dropped. The cooling local real estate market worsened the slowdown for financial services firms.

Housing is also slumping in the U.K., where loans for home purchases dropped to a two-year low last month. The credit crunch moved into its fourth month in December, Michael Coogan, director general of the Council of Mortgage Lenders in London, said Jan. 21. Lending volumes are likely to remain weak for the next few months.

Retail sales fell in December by the most in 11 months. ScS Upholstery Plc, owner of 96 sofa stores in the U.K., said Jan. 14 that earnings will suffer after disappointing December and January business.

The U.K.'s biggest nightclub owner, Luminar Group Holdings Plc, said Jan. 18 that sales growth slowed as Britons spent less on nights out.

`Gloomy Picture'

It's a gloomy picture for the consumer, says James Knightley, an economist at ING Financial Markets in London. The prospect of recession is becoming more realistic.

Retailers Tesco Plc and Marks & Spencer Plc this month called for interest-rate cuts to help consumers, who have 1.4 trillion pounds ($2.76 trillion) of debt. Economists surveyed by Bloomberg predict the Bank of England will lower its main rate a quarter percentage point, to 5.25 percent, on Feb. 7.

Spain is also grappling with a housing boom gone bust. Banco Bilbao Vizcaya Argentaria SA, Spain's No. 2 lender, predicts property prices will fall this year and building permits will drop 25 percent.

With more than 18 percent of gross domestic product coming from construction, Spain's economy is particularly susceptible to weakness in real estate.

Spanish Construction

The main problem lies in construction but it has already spread to other sectors, says Gilles Moec, senior economist at Bank of America in London.

With other European countries, including Germany, showing signs of slowing, European Central Bank President Jean-Claude Trichet faces pressure to abandon his tough anti-inflation stance and cut interest rates. We'll see rate cuts in the European Union and in the U.K. this year, Barclays Plc President Bob Diamond said Jan. 24 in Davos.

Hopes that China's fast-growing economy can take up the slack from a U.S.-led slowdown seem misplaced.

If there is weakness in the world economy, the impact on the Chinese economy will be very serious, says Yu Yongding, director of the Chinese Academy of Social Sciences and a former adviser to the central bank.

China's growth slowed to a year-over-year pace of 11.2 percent in the fourth quarter, from 11.5 percent and 11.9 percent in the third and second quarters, respectively.

In Davos, Klaus Kleinfeld, chief operating officer of Alcoa Inc., the world's third-largest aluminum producer, said he foresees a difficult year. I don't think the world can decouple itself from what's happening in the U.S.

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.

U.S. Stocks Decline on Citigroup's Loss, Drop in Retail Sales

The U.S. stock market resumed its January swoon after Citigroup Inc. reported a record loss, retail sales unexpectedly dropped and falling oil prices dragged down energy shares.

Citigroup, the largest U.S. bank, declined the most since November in New York Stock Exchange trading after cutting its dividend by 41 percent because of rising home-loan defaults. Exxon Mobil Corp., the biggest U.S. oil company, posted its steepest drop in seven weeks. Wal-Mart Stores Inc., the world's largest retailer, tumbled on a report showing sales at chain stores slumped in December for the first time since June.

The Dow Jones Industrial Average, which had its biggest gain for the year yesterday, slid 182.25, or 1.4 percent, to 12,595.9 at 10:30 a.m. in New York. The Standard & Poor's 500 Index lost 25.06, or 1.8 percent, to 1,391.19, bringing its 2008 decline to 5.3 percent. The Nasdaq Composite Index decreased 44.7, or 1.8 percent, to 2,433.6. More than 10 stocks retreated for every one that rose on the NYSE.

There's probably going to be more pain in the financial stocks, said Bartley Barnett, head of listed trading at Memphis-based Morgan Keegan Inc., which manages $120 billion in client assets. The weak consumer is the thing permeating this entire market. We've had a lot of companies have to adjust numbers down due to a weak consumer.

Cash Infusions

The declines added to three weeks of losses that wiped out more than $800 billion in value from U.S. shares. Merrill Lynch & Co. and Citigroup were forced to turn to outside investors for a second time in two months to replenish capital. Wall Street banks have received $59 billion from investors, mostly in the Middle East and Asia, to shore up balance sheets battered by more than $100 billion of writedowns from mortgage-related losses.

Financial companies in the S&P 500 are projected to report a 69 percent average drop in profits in the fourth quarter, dragging earnings for the overall index down 10 percent, according to a Bloomberg survey of analysts.

The dollar approached a record low versus the euro, making U.S. exports more attractive to foreign buyers, after the drop in retail sales bolstered speculation the economy is headed for recession. Prices paid to U.S. producers unexpectedly fell in December, pushed down by a decline in energy prices.

Citigroup decreased $1.63, or 5.6 percent, to $27.43. The fourth-quarter net loss of $9.83 billion, or $1.99 a share, compared with a profit of $5.1 billion, or $1.03, a year earlier. Citigroup also cut its dividend by 41 percent, announced 4,200 job cuts and said it will receive $14.5 billion from outside investors to shore up depleted capital.

'No End of Bad News'

There seems to be no end of bad news, Laszlo Birinyi, president of Birinyi Associates Inc., said in an interview with Bloomberg Television. Trying to bottom-fish may work when you're out there angling, but I'm not sure it works with financial markets,

Exxon lost $1.74, or 1.9 percent, to $89.09 after the retail sales report sent crude oil down 2.6 percent to $91.78 a barrel in New York, its lowest level in more than three weeks.

Merrill tumbled $1.62 to $54.35 after the third-biggest U.S. brokerage sold $6.6 billion in preferred shares. Merrill's convertible securities will pay a 9 percent annual dividend until they automatically turn into shares in 2 3/4 years. The investment group will get fewer shares if Merrill's stock price climbs above $61.31 and more if it drops below $52.40, according to the company's statement.

Wal-Mart slipped 48 cents to $47.19. The Commerce Department said sales at U.S. retailers fell 0.4 percent in December, capping the weakest year since 2002. Sales declined for the first time since June, following a revised 1 percent gain in November, the Commerce Department said. Purchases excluding automobiles also decreased 0.4 percent.

State Street

State Street Corp. dropped $3.11 to $81.75. The world's largest money manager for institutions said fourth-quarter earnings fell 28 percent after setting aside $618 million to settle legal claims stemming from losses on subprime mortgages. The company said 2008 growth will be at the lower end of its target ranges.

Williams-Sonoma Inc. dropped $2.20, or 9.9 percent, to $20. The seller of gourmet cookware reported a decline in holiday sales and lowered its fourth-quarter profit forecast amid the worst housing slump in 27 years. Sales at stores open more than a year fell 0.4 percent for the nine weeks through Dec. 30, the company said.

Genentech Inc. decreased $2 to $68.64. The world's second- biggest biotechnology company said sales of its top product, the cancer drug Avastin, fell short of analysts' expectations.

Traders held steady in their bets for an interest-rate cut. Fed fund futures show a 44 percent probability the Federal Reserve will lower its benchmark interest rate by 0.75 percentage point this month. Before Jan. 11, traders saw no chance of a three-quarter point cut to 3.5 percent. The balance of the odds are for a half-point cut.