Home Sales Drop 12%, Dow Drops 160 Points

Elena
05 Sep, 2007
New York City

U.S. stocks tumbled on a heavy sell-off amid a report showing a steep decline in pending home sales. The U.S. housing market showed signs of major mortgage disruptions after the National Association of Realtors said existing homes dropped 12.2% in July, the largest drop since the pending homes sales index started in 200. On the one hand, the report was in favor of an interest rate cut, on the other, it intensified worries about economic growth. The Dow dropped 160 points.

[R]09:45AM Wall Street opened lower on cautiousness ahead of economic data.[/R]

Wall Street opened in the negative Wednesday after solid gains the previous session, as well as one gauge of employment which prompted downward revision of employment report Friday. Investors were cautious ahead of Beige Book release which will give detailed description of the economic conditions across the country and will give further clues about whether the Fed Reserve will reduce its key federal funds rate at its meeting on September 18. Economic report on how the housing market is faring was also eagerly anticipated.

On Wednesday two companies said they were prevented from merging because of the current difficult market conditions. Private-mortgage insurer MGIC Investment ((MTG)) and rival Radian Group ((RDN)) announced that they terminated merger talks and abandoned plans to combine the two companies. Radian Group dropped more than 9%. In other deal-related news, Applix ((APLX)) surged 22% after Cognos ((COGN)) agreed to buy the company in a cash deal valued at about $306 million, or $17.87 a share.

Among stocks driven by analyst comments, Dow member Altria ((MO)) fell 1.4% after Goldman Sachs downgraded the tobacco group to neutral from buy. Kraft Foods ((KFT)) rose 1.2% after it lifted its full-year per-share earnings guidance to a range of $1.60 to $1.62 from $150 to $1.55.

Retail stocks posted notable losses in early trading, led by Guess ((GES)) which dropped 10.7% after it predicted full-year earnings at the low-end of forecasts. Walgreen ((WAG)) lost 0.7% after posting a 6.5% rise in same-store sales in August. The world''s biggest maker of toys Mattel ((MAT)) slipped 3% after a third recall of toys made in China.

In the first minutes of trading, the Dow Jones industrial average fell 75.76, or 0.56%, to 13,373.10. The Standard & Poor''s 500 index fell 7.84, or 0.53%, to 1,481.58 and the Nasdaq composite index fell 13.50, or 0.51%, to 2,612.74.


[R]09:00AM U.S. stock futures indicated a lower opening ahead of economic data.[/R]

U.S. stock futures reversed from the strong run yesterday, indicating a steep decline at opening on Wednesday amid disappointing employment data. Wall Street closed higher Tuesday, boosted by strong gains in the tech sector after favorable comments on Yahoo ((YHOO)), Advanced Micro Devices ((AMD)) and Intel ((INTC)). Yahoo is expected to attract attention after agreeing late Tuesday to buy online ad company BlueLithium for $300 million.

According to the ADP employment report posted early Wednesday, employment in the U.S. private sector grew by 38,000 in August, the weakest in four years, suggesting that nonfarm payrolls may have grown much slower than the 123,000 expected by economists. The economic agenda also included the release of the Beige Book later in the session.

Among companies in focus, Altria ((MO)) fell 1.3% in pre-market trading after the tobacco group was downgraded to neutral from buy at Goldman Sachs. Alcoa ((AA)) shares gained 1.5% in the pre-open after Merrill Lynch upgraded its stock. The broker also lifted its metal price forecast, while Morgan Stanley raised its oil-price view.

In deal-related news, Canadian Pacific Railway ((CP)) agreed to pay $1.48 billion to buy Dakota, Minnesota and Eastern Railroad. In other corporate news, private-mortgage insurer MGIC Investment ((MTG)) and rival Radian Group ((RDN)) announced that they terminated merger talks and abandoned plans to combine the two companies.

S&P 500 futures declined 11.2 points at 1,478.40 and Nasdaq 100 futures declined 9.25 points at 2,015.50. Dow industrial futures fell 71 points.


[R]8.30AM MGIC Investment and rival Radian Group decided to terminate merger talks.[/R]

Private-mortgage insurer MGIC Investment ((MTG)) and rival Radian Group ((RDN)) announced Wednesday that they terminated merger talks and abandoned plans to combine the two companies. Òhe reason they brought to the fore was troubles in the mortgage industry.

The companies announced an acquisition deal on Feb. 6. According to the agreed terms, MGIC was expected to pay about $5 billion for Radian. However, its value notably decreased along with MGIC''s stock price.

MGIC said in August it no longer believed it had to complete the buyout of Radian because their joint interest in subprime mortgage investor C-Bass LLC could be worthless. The two firms announced their agreement to terminate the pending merger, as keeping their independence would be in their favor. Neither company paid each other to get out of the agreement.