(Updates to midday, changes byline)
By Cal Mankowski
NEW YORK, Feb 28 (Reuters) - U.S. stocks tumbled on
Thursday as worries about the economy grew following a
weaker-than-expected reading on gross domestic product and a
warning from Federal Reserve Chairman Ben Bernanke that there
probably will be bank failures because of the housing slump.
Stocks opened lower after new data showing sluggish growth
in the economy, measured by GDP in the fourth quarter of 2007,
and an increase in claims for jobless benefits.
Bernanke, during the second day of his semiannual
testimony before a congressional committee, said there may be
some failures among smaller banks that invested heavily in
real estate because the housing market's severe problems may
drain their capital. He added, however, that the U.S. banking
system overall is in good shape with the biggest banks well
capitalized. For details, see []
The KBW Bank Index <.BKX> was down 3.3 percent, while the
Standard & Poor's financials index <.GSPF> was down 3
percent. JPMorgan Chase & Co. <JPM.N> shares led the Dow's
biggest decliners and weighed heavily on the S&P 500. JPMorgan
Chase slid 3.7 percent to $42.75 after two brokerages cut
their earnings estimates.
"I think this is a real issue," said Joseph Battipaglia,
market strategist at Stifel Nicolaus in Yardley, Pennsylvania,
adding that there are large inventories of homes for sale in
states like Florida, California, Arizona and Nevada. He noted
that banks in those markets that kept the loans on their books
and did not diversify their lending could be in trouble.
The Dow Jones industrial average <> was down 127.65
points, or 1.01 percent, at 12,566.63. The Standard & Poor's
500 Index <.SPX> was down 12.93 points, or 0.94 percent, at
1,367.09. The Nasdaq Composite Index <> was down 22.13
points, or 0.94 percent, at 2,331.65.
Battipaglia said the possibility of bank failures has not
been discussed much, noting that the stock market generally
reacts to news that is not only perceived to be negative but
adds a new element.
American International Group Inc <AIG.N>, the world's
largest insurer, fell 3.2 percent to $50.60 on the New York
Stock Exchange ahead of quarterly earnings, due after the
closing bell.
Shares of residential mortgage lender Thornburg Mortgage
Inc <TMA.N> plummeted 17.6 percent to $9.51 after the company
said it faced margin calls on $2.9 billion of securities
backed by below-prime loans. For details, see
[].
Home builders' shares slid after the disappointing GDP
data and a report showing a jump in jobless benefit claims in
the latest week, which pointed to the widening impact of the
U.S. housing downturn.
The Dow Jones U.S. home construction index <.DJUSHB> slid
6.3 percent. Shares of D.R. Horton Inc <DHI.N>, the largest
U.S. home builder, slid 9 percent to $15.57 on the NYSE.
Shares of Hovnanian Enterprises <HOV.N>, a builder of upscale
homes, tumbled 6.8 percent to $10.09.
The latest reports on GDP and jobless claims revived
uncertainty about companies' profit outlook, which rely on
investment by businesses and consumer spending. GDP measures
total output of goods and services within U.S. borders.
[]
In his congressional testimony, Bernanke also said that
the central bank will do what is needed to shore up the
sputtering economy.
Sprint Nextel Corp <S.N> dropped 10.4 percent to $8.02 on
the NYSE after the U.S. cell-phone service company reported a
quarterly loss of $29.45 billion and scrapped its dividend.
For details, see []
Among Nasdaq stocks, Microsoft Corp <MSFT.O> slid 1
percent to $27.99 and ranked as the heaviest weight on the
Nasdaq 100 <> index. Bear Stearns cut its estimates for
Microsoft's GAAP earnings per share for both the third quarter
and fiscal 2008 after the European Commission levied a record
fine against the company for failure to comply with antitrust
sanctions. []
(Editing by Jan Paschal)
