Wall Street stocks retreated on Monday as worries about potential credit-lossses at American International Group (NYSE:AIG) added to fears that US companies face further credit-related turmoil.
Less than an hour after the opening bell, the S&P 500 was down 0.4 per cent at 1,326.12, the Nasdaq Composite fell 0.2 per cent to 2,300.98 and the Dow Jones Industrial Average declined 0.5 per cent to 12,125.15.
Dow component AIG, the world's largest insurer, slumped 10 per cent to $45.58 on Monday, its lowest in nearly five years, after its auditors found "material weakness" in its internal controls related to the reporting of fair valuation of its credit default swap portfolio.
AIG said it had not yet determined how much the value of its super senior CDS portfolio had declined
A broad range of financial stocks came under pressure as a risk indicators pointed to elevated tension in credit markets.
The iTraxx Crossover, which measures the cost of insuring a basket of mostly junk-rated credits against default, soared to a record high amid continued speculation that structured credit products were being unwound.
The S&P 500 fell 4.6 per cent last week as fears grew that corporate and commercial property defaults are set to rise. Investors were gripped by worries that the market for leveraged loans - used to finance Wall Street dealmaking - has been hit by an increase in redemptions.
Speaking after a Group of Seven meeting, Peer Steinbrück, German finance minister, warned this weekend that writedowns linked to the US subprime mortgage crisis could reach $400bn, sharply higher than the $120bn losses already booked by Wall Street banks and other institutions.
Dow Jones on Monday announced changes to its benchmark Dow Jones Industrial Average, removing Altria and Honeywell and replacing them with Bank of America and Chevron.
The changes were the first since April 2004 and are set to apply from February 19. Honeywell, an industrial conglomerate, fell 0.7 per cent to $57.42 and Altria, which is in the process of spinning-off its international tobacco business, fell 0.8 per cent to $72.53.
Dow Jones said the changes were made to reflect the growing importance of oil and gas to the global economy, while financials were also under-represented.
In dealmaking news Yahoo's board on Monday rejected Microsoft's $31-a-share offer as inadequate, threatening to trigger a drawn out takeover battle. The software giant is now preparing to target Yahoo's shareholders directly, the FT reported.
The Times said the search company was looking to restart merger talks with AOL to fend off Microsoft's bid. Yahoo's shares rose 2 per cent to $29.79 while Microsoft fell 1.9 per cent to $28.03 after RBC Capital Markets slashed its price target from $40 to $31.
Meanwhile, Motorola and Nortel Networks are in discussions about a possible merger of their wireless-infrastructure units, The Wall Street Journal reported. The shares rose 1.2 per cent to $11.40 and 0.7 per cent to $11.15 respectively.
European stocks were mixed as Wall Street opened. The FTSE Eurofirst 300 index was down 0.1 per cent, the FTSE 100 slipped 0.3 per cent but the Dax climbed 0.5 per cent in Germany. Asian equity markets closed mainly lower, led by a 3.6 per cent fall on the Hang Seng.
Bond prices pared earlier losses as stocks hit reverse gear. The yield on the two-year Treasury note fell 5bp to 1.88 having earlier climbed to 1.97 per cent. The 10-year Treasury note yield slid 6bp to 3.59 per cent.
The dollar was was broadly lower again against other major currencies early in New York. In overnight trade the dollar fell 0.1 against the euro to $1.4525 and 0.1 per cent against the pound to $1.9474. Against the yen the US currency fell 0.3 per cent to Y106.97 as investors cut back on carry trades.
Gold was trading 0.4 per cent higher at $926.10 while WTI crude oil futures fell 0.3 per cent to $91.51.
In earnings news, toymaker Hasbro on Monday said fourth quarter profit rose 24 per cent as revenues jumped 16 per cent. The stock rose 3 per cent to $26.65.
This week is a relatively quiet period for economic data updates. Retail sales and business inventories are due on Wednesday, initial jobless claims on Thursday with import and export prices set to round off the week on Friday.
No comments:
Post a Comment