NEW YORK (AP) - Wall Street retreated Friday as investors contended with two
of the biggest threats to the economy: fallout from turmoil in the credit market
and surging energy prices. The Dow Jones industrial average lost more than 125
points.
Insurer American International Group Inc. rattled investors after posting a
wider-than-expected first-quarter loss, rekindling investors' anxiety about the
strained state of the global financial system. AIG reported a loss of $7.81
billion -- its second straight quarterly loss -- and revealed plans to raise
$12.5 billion in the coming months. The world's largest insurer, like many of
its peers in the financial services sector, has seen its investments in the
credit markets plunge in value.
Meanwhile, rising crude oil prices remained a source of worry for investors,
as they had much of the week and in recent months. Oil futures rose above $126 a
barrel for the first time, further stoking Wall Street's concerns about
inflation that could curtail consumer spending. Light, sweet crude rose as high
as $126.20 on the New York Mercantile Exchange before settling at a record
$125.96. For the week, oil jumped nearly $10.
"I think what we're seeing so far is a reaction principally to the AIG
news," said Phil Orlando, chief equity market strategist at Federated Investors.
"That news came as something of a surprise to some and a wake-up call to most
that the financial-service companies are not yet out of the woods."
But Orlando noted that the market has pulled back this week after a sizable
rebound in the last two months and that some investors might be eager to lock in
profits while Wall Street irons out some concerns about the financial sector.
"Our view has been that the market, generally speaking, is in pretty good
shape with the exception of the financial service companies and the consumer
dictionary companies," he said, noting that the news from AIG is an important
reminder of the troubles remaining among financials.
In late afternoon trading, the Dow fell 125.22, or 0.97 percent, to
12,741.56.
Broader stock indicators were also lower a day after the stock market
notched a modest advance. The Standard & Poor's 500 index fell 9.85, or 0.70
percent, to 1,387.83, and the Nasdaq composite index fell 8.22, or 0.34 percent,
to 2,443.02.
Bond prices rose as investors sought the safety of government debt. The
yield on the benchmark 10-year Treasury note, which moves opposite its price,
fell to 3.76 percent from 3.78 percent late Thursday.
Gold prices advanced, while the dollar traded mixed against other major
global currencies.
The economic figures arriving Friday underscored the slowdown in the U.S.
economy. The Commerce Department said the U.S. trade deficit narrowed in March
as demand for imports registered the biggest decline since the last recession
was ending. The deficit stood at $58.2 billion, a decrease of 5.6 percent from
February. The 2.9 percent drop in demand for imports was the steepest monthly
decline since December 2001 -- a month after the last recession ended.
In corporate news, AIG fell $3.60, or 8.2 percent, to $40.55 after reporting
its loss. The stock was by far the steepest decliner among the 30 that comprise
the Dow industrials.
Citigroup Inc. said it hopes to shed about $500 billion in assets and
increase revenue by 9 percent over the next few years as it tries to recover
from big losses tied to deterioration in the mortgage and credit markets. Citi,
one of the Dow 30 stocks, slipped 66 cents to $23.64.
General Motors Corp., also a Dow component, said in a regulatory filing it
would provide financial support to help settle the 10-week strike at auto parts
supplier American Axle and Manufacturing Holdings Inc. GM fell 76 cents, or 3.6
percent, to $20.39.
Consumer electronics chain Circuit City Stores Inc. said it received a
letter from suitor Blockbuster Inc. that the company's largest shareholder,
financier Carl Icahn, is prepared to buy Circuit City even if the video rental
chain can't win the necessary financing or shareholder approval.
Circuit City jumped 34 cents, or 7.1 percent, to $5.13, while Blockbuster
slipped 3 cents to $2.65.
Investors' caution Friday precedes what will likely be a busy week of
economic news now that the flow of quarterly earnings reports is beginning to
ebb.
"Next week I think will be a fairly important economic week," Orlando said,
pointing to expected reports on retail sales, retail inventories, industrial
production and regional manufacturing.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock
Exchange, where volume came to 827.6 million shares.
The Russell 2000 index of smaller companies fell 0.67, or 0.09 percent, to
718.88.
Overseas, Japan's stock market fell 2.06 percent. Britain's FTSE index fell
1.05 percent, Germany's DAX index fell 0.97 percent, and France's CAC-40 fell
1.88 percent.
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