NEW YORK (Reuters) –
Stocks fell on Thursday as signs of weakness in housing and investors' worries that authorities might be curbing stimulus efforts too soon sparked caution.
World central banks said they would scale back infusions of U.S. dollars into their banking systems, fueling unease triggered a day earlier when stocks sold off following the U.S. Federal Reserve's decision to slow purchases of mortgage debt.
That program has been one of the key pillars of the Fed's efforts to support mortgage lending.
Thursday's losses drove the benchmark S&P 500, which has rallied nearly 60 percent in six months from 12-year lows, to its worst two-day drop in three weeks as investors pummeled stocks across the board.
All 10 S&P 500 sectors fell, with materials, energy, financials and industrials faring the worst.
"The housing number today probably threw some gasoline on the fire," said John Kosar, market technician and president of Asbury Research in Chicago. "It's not only that the recovery is fragile, but the other important story is just how far the market has come, so fast. The Fed statement was a little bit sobering."
The Dow Jones industrial average (.DJI) dropped 41.11 points, or 0.42 percent, to 9,707.44. The Standard & Poor's 500 Index (.SPX) fell 10.09 points, or 0.95 percent, to 1,050.78. The Nasdaq Composite Index (.IXIC) slid 23.81 points, or 1.12 percent, to 2,107.61.
In disappointing news for the economy, The National Association of Realtors said sales of existing homes fell 2.7 percent to an annual rate of 5.10 million units, a drop that dented optimism about housing after four months of gains in home sales.
The Dow Jones U.S. Home Construction index (.DJUSHB) fell 2.4 percent. Among shares of major homebuilders D.R. Horton (DHI.N) sank 4.2 percent to $11.93, while Toll Brothers (TOL.N) shed 2.3 percent to $20.21 and Beazer Homes (BZH.N) lost 4 percent to $5.78.
"With a market that has had such an explosive recovery from its lows, any kind of news that has people second-guessing the recovery will give people an excuse to sell," said Craig Peckham, equity trading strategist at Jefferies & Co in New York.
After the closing bell, investors were hit by more disappointing news. Research In Motion Ltd (
RIM also gave an outlook that disappointed investors. Its stock ended regular trading down 3.2 percent.
Stocks had risen early after data showed a fall in the number of workers filing new claims for jobless benefits, but the gains were short-lived.
Shares of natural resources companies were weighed down by falling global commodity prices as the U.S. dollar rose. U.S. front-month crude fell 4.5 percent, or $3.08, to settle at $65.89 a barrel on the New York Mercantile Exchange.
Spot gold prices fell below $1,000 an ounce.
Caterpillar Inc (CAT.N), which makes bulldozers and excavators, was the top drag on the Dow, falling 2.4 percent to $51.85, while Chevron Corp (CVX.N) shares fell nearly 1 percent to $70.71.
The S&P energy index (.GSPE) was down 1.3 percent, while the S&P materials index (.GSPM) dropped 2 percent.
Among financial stocks, JPMorgan (JPM.N) dropped 1.5 percent to $44.37, while the KBW bank index (.BKX) declined 2.1 percent.
On Nasdaq, Electronic Arts (ERTS.O) fell 2.7 percent to $19.29 after a Microsoft (MSFT.O) executive said the software company had no plans to buy the video game publisher.
Volume was moderate, with about 1.37 billion shares changing hands on the New York Stock Exchange, compared with last year's estimated daily average of 1.49 billion. On the Nasdaq, about 2.60 billion shares traded, above last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones by a ratio of about 7 to 2 on both the NYSE and Nasdaq.
(Editing by Kenneth Barry)
PHILADELPHIA – It all comes down to details: The success of the federal government's attempts to keep homeowners from defaulting on their mortgages appears to hinge on small things such as a servicer not losing a customer's documentation.
That's the message community groups gave Thursday to three members of the oversight panel for the Troubled Asset Relief Program. At a hearing in Philadelphia, the panel looked at whether the Obama administration's plan to attack the mortgage crisis has clearly led to more affordable mortgages for struggling homeowners.
The Obama administration has set aside $50 billion from the financial industry bailout to prod lenders to modify more loans, but little money has actually been spent so far, since lenders have to complete three-month trials to get paid.
The community groups said disparate banking practices and inefficiencies have led to delays in approvals, clogged the pipeline, curtailed the success of loan mod programs.
Eileen Fitzgerald, chief operating officer of NeighborWorks America, said it can take as long as two hours to reach a mortgage servicer. Some homeowners send in documentation, but are asked to do so again. At times, mortgage servicers appeared cagey about disclosing the full terms of the new loan.
"There's a huge process problem here," Fitzgerald said. "If you ask, how could you design a more dysfunctional system? You can't."
Jeffrey Ison, a 53-year-old Philadelphia resident, has been in limbo about the modification of his $295,000 home loan since March. The city worker said he was out of a job for a while and fell three months behind on his mortgage. Picketing outside the hearing, he said approval has taken so long in part because they lost his documents.
"They haven't approved it because of the swamp of homeowners," Ison said.
Lenders acknowledged that they've had troubles handling the deluge of loans initially, but service has improved.
"It's not easy, but it's something we've gotten better at each month," said Allen Jones, an executive at Bank of America Corp.
However, the lenders' view of their performance differed markedly from those of community groups. Asked to give themselves a grade, Bank of America and Wells Fargo & Co. rated themselves a "B" while two community groups gave the mortgage industry a "D."
"Some of the larger banks may have been overly generous," said Richard Neiman, superintendent of banks for New York and a member of the oversight panel. "A grading higher than "C" would be very difficult."
WASHINGTON (Reuters) –
Sales of previously owned homes in the United States unexpectedly fell for the first time in four months in August, indicating a less vigorous pace of economic recovery from a deep recession.
The sales drop overshadowed other data showing a fall in the number of U.S. workers who filed new jobless benefits claims last week.
Separately, central banks in the United States and Europe on Thursday moved to scale back massive injections of dollars into the banking system as financial markets stabilize after the worst global financial crisis since the 1930s.
The National Association of Realtors (NAR) said sales of existing U.S. homes fell 2.7 percent to an annual rate of 5.10 million units, disappointing market expectations for a rise to a 5.35 million unit pace. That was the first fall since April.
Another report from the U.S. Labor Department showed new claims for unemployment benefits unexpectedly fell 21,000 to a seasonally adjusted 530,000 last week. Analysts polled by Reuters had expected initial claims to rise to 550,000.
The housing report did little to change views the economy is recovering from its worst recession in 70 years but raised doubts about how long the rebound will last.
"Everyone knows the third quarter (economic growth) is going to be very good, the question is how sustainable is this recovery and will the housing market be able to fly on its own once the emergency government aid is removed," said Zach Pandl, an economist at Nomura Securities International in New York.
The Federal Reserve -- the U.S. central bank -- on Wednesday acknowledged activity had picked up and noted the improvement in the housing sector when it left its key overnight lending rate near zero.
A top White House economic adviser, Christina Romer, said on Thursday the U.S. economy was "back from the brink", but warned policy-makers against removing fiscal and monetary stimulus too quickly.
Stocks on Wall Street dropped on the homes report and worries that authorities might be curbing stimulus too soon. Government bond yields fell as the data strengthened perceptions the economic recovery could falter once stimulus from government spending fades.
Leaders of the G20 group of rich and developing nations were gathering in Pittsburgh on Thursday to discuss ways of rebalancing the world economy to prevent another banking crisis and recession.
SELF-SUSTAINING RECOVERY SOUGHT
U.S. home sales have been boosted in recent months by an $8,000 government tax credit for first-time buyers and an improving economic picture as well as the lowest prices and mortgage rates in decades.
The tax credit expires at the end of November and NAR chief economist Lawrence Yun said the industry group was lobbying to have it extended into next year to avoid what he called a double-dip recession for the housing market.
A housing sector collapse was the main force behind the recession, which started in December 2007.
"The housing market is close to reaching a point of self-sustaining recovery. We are pushing for the extension of the tax credit so that we achieve this," Yun told reporters.
The decline in August sales was a minor retreat after a strong rise in July, Yun said, and issues related to appraising home values could have led to delays or cancellations of contracts to buy homes. Pending sales contracts rose in July.
Despite the monthly decline, August's sales pace was the second-highest in 23 months, and sales of previously owned homes rose 3.4 percent compared to August last year.
The August national median home price of $177,700, off 12.5 percent from August last year, continued to be weighed down by distressed properties, which accounted for 31 percent of sales last month.
The inventory of existing homes for sale in August fell 10.8 percent to 3.62 million units from July, the NAR said. August's sales pace left the supply of previously owned homes on the market at 8.5 months from 9.3 months' worth in July.
"Supply is getting close to the level of 7.5 months that has historically been consistent with stable house prices," said Paul Dales, U.S. economist at Capital Economics in Toronto.
"That said, home sales remain 30 percent below their peak and the fall back in August illustrates that the recovery is going to be gradual and patchy rather than quick and firm."
Stubbornly high unemployment continues to cast a pall over the strength of the economic recovery, which many economists agree is already under way.
While fewer workers submitted applications for unemployment benefits last week, analysts said initial claims had to fall below 500,000 to signal a recovery in the labor market.
"The labor market is stabilizing. We're not quite down to the level that would signal that the economy is creating more jobs than it is losing, but we could reach that point later this year or early next year," said Gary Thayer, a strategist at Wells Fargo Advisors in St. Louis, Missouri.
The four-week moving average of new claims -- considered a better gauge of labor market trends -- dipped to 553,500, the lowest since late January, the Labor Department said.
The number of workers continuing to draw unemployment aid after an initial week of benefits fell 123,000 to 6.138 million in the week ending September 12.
Analysts said the steady decline in weekly jobless claims bodes well for September's U.S. nonfarm payrolls report due on Friday, October 2.
For a graphic on existing home sales, click on: http://graphics.thomsonreuters.com/099/US_HOMSLS0909.gif
(Additional reporting by Mark Felsenthal in Washington and Ellen Freilich in New York; Editing by Andrew Hay)