Stocks drop after ratings agency warns about Portugal’s debt; new home sales fall

Stocks fall after Portugal’s rating cut

NEW YORK — Stocks fell Wednesday on renewed concerns about European debt problems and weakness in the housing market.

The drop comes after Fitch Ratings lowered Portugal’s credit rating. The rating firm said the country’s recovery will be slower than other countries that use the euro. Fitch contends that could hurt Portugal’s ability to repay its debt.

Debt problems in Europe have been one of the few drags on stocks in recent months. Rising debt in Greece, Portugal and other nations that use the euro have investors worried the countries will struggle to rebound economically and upend a global recovery.

The dollar rose sharply against the euro and other major currencies. The dollar is at its highest level against the euro since May. The stronger dollar makes commodities more expensive to foreign buyers. That cuts into demand.

Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto, said investors have been too quick to look past risks still facing the economy such as debt problems in Portugal.

“There are quantitative issues that the markets have been ignoring,” he said. “I believe that markets are somewhat extended.”

In midday trading, the Dow Jones industrial average fell 35.45, or 0.3 percent, to 10,853.38, a day after closing at its highest level since September 2008.

The Standard & Poor’s 500 index dropped 4.96, or 0.4 percent, to 1,169.21, while the Nasdaq composite index fell 13.02, or 0.5 percent, to 2,402.22.

Bond prices fell sharply ahead of an auction for five-year Treasury notes. The yield on the five-year note, which moves opposite price, rose to 2.51 percent from 2.43 percent.

The yield on the benchmark 10-year note rose to 3.77 percent from 3.69 percent late Tuesday.

A Commerce Department report on new home sales showed the market is continuing to contract. Sales unexpectedly fell to the lowest level on record in February as bad winter weather kept buyers out of the market.

New home sales fell 2.2 percent last month to a seasonally adjusted annual sales pace of 308,000. Economists polled by Thomson Reuters had forecast sales would rise to 320,000.

The report comes a day after the National Association of Realtors said a drop in sales of existing homes wasn’t as bad as forecast last month.

A recovery in housing has been uneven. Reports that beat even modest expectations have regularly been met with buying on Wall Street, such as Tuesday’s big gains. The Dow jumped nearly 103 points, or 1 percent. It has advanced in 10 of the past 11 days.

Investors seemed to brush off a report on orders to factories for big-ticket manufactured goods that showed continued growth. Unlike the housing market, the manufacturing sector has shown steady improvement in recent months.

Durable goods orders — items expected to last at least three years — rose 0.5 percent last month, slightly below expectations for 0.7 percent growth. However, it was the third straight month orders rose, and excluding the volatile transportation sector, orders jumped by more than expected.

Orders climbed 0.9 percent in February excluding aircraft and other transportation orders. Economists had forecast an increase of 0.6 percent.

In corporate news, General Mills Inc. said its fiscal third-quarter profit jumped 15 percent and topped forecasts. The maker of Cheerios and Yoplait yogurt also raised its earnings outlook for 2010, though it still falls short of analysts’ expectations. General Mills shares fell $1.17 to $72.40.

Homebuilder Lennar Corp. said its fiscal first-quarter loss narrowed. However, the company said it is on track to return to profitability this year, which sent its shares higher. It climbed 91 cents, or 5.3 percent, to $17.97.

MF Global Holdings Ltd. shares surged after it named former New Jersey Governor and Goldman Sachs executive Jon Corzine as its CEO. It jumped 82 cents, or 11.2 percent, to $8.14.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 422.8 million shares, compared with 410.6 million shares traded at the same point Tuesday.

Gold fell.

Crude oil fell $1.14 to $80.77 per barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies fell 3.63, or 0.5 percent, to 686.67.

Overseas, European indexes bounced off lows initially seen after the Portugal debt downgrade. Britain’s FTSE 100 fell 0.1 percent, Germany’s DAX index rose less than 0.1 percent, and France’s CAC-40 fell 0.5 percent. Japan’s Nikkei stock average rose 0.4 percent.