Stocks retreat following overseas markets lower; traders brace for weak housing report

By Stephen Bernard, AP
Tuesday, August 24, 2010

Stocks drop on global economic worries

NEW YORK — Stocks retreated Tuesday as worries continue to mount about the pace of a global recovery.

U.S. traders braced for another disappointing report on the housing market later in the day. Overseas markets tumbled.

The Dow Jones industrial average fell more than 100 points in morning trading. Broader indexes also fell more than 1 percent. Investors jumped back into the Treasury bond market as they shunned stocks for the safety of government debt. That sent interest rates lower.

Stocks extended a slide that continued Monday when investors focused more on signs that economic growth is slowing than strength in individual companies and a fresh round of corporate dealmaking. Economic reports in recent weeks have shown the pace of the recovery is waning, which has sparked concerns the economy could fall back into recession.

Japanese stocks led the way lower Tuesday, falling more than 1 percent as the yen hit a fresh 15-year high against the dollar. Japan’s economy relies heavily on exports, so a stronger yen hurts profitability. European markets were also sharply lower.

The National Association of Realtors is expected to report that sales of previously occupied homes plunged in July. Sales totaled a seasonal adjusted annual rate of 5.37 million houses in June.

Home sales have tumbled since a home buyer tax credit expired at the end of April, despite mortgage rates falling to record lows. Banks have also been selective in giving loans, which could be freezing out many potential buyers.

Home buyers also remain skittish about the value of homes and job concerns remain pervasive adding to the caution. The unemployment rate remains at 9.5 percent and weekly claims for unemployment benefits have consistently risen in recent weeks.

In early morning trading, the Dow Jones industrial average fell 103.83, or 1 percent, to 10,074.06. The Standard & Poor’s 500 index fell 11.60, or 1.1 percent, to 1,055.76, while Nasdaq composite index fell 25.54, or 1.2 percent, to 1,786.79.

About 10 stocks fell for every one that rose on the New York Stock Exchange where volume came to 94.8 million shares.

Japan’s Nikkei stock average fell 1.3 percent. Britain’s FTSE 100 fell 1.7 percent, Germany’s DAX index dropped 1.4 percent, and France’s CAC-40 fell 1.8 percent.

The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.52 percent from 2.60 percent late Monday. Its yield is often used as a gauge to set interest rates on mortgages and other consumer loans.

The 10-year note’s yield continues to hover around levels not reached since March 2009 when the stock market hit a 12-year low and investors were concerned about the deepening recession.

Reports due out later in the week will also provide insight into the health of the economy. Data on new home sales, durable goods orders, weekly jobless claims and consumer sentiment are scheduled for release later in the week.

Also, the government will release a revised report on second-quarter gross domestic product. The broadest measure of the country’s total economic output is expected to be lower than initially thought, adding to concerns about the pace of the domestic recovery.

Federal Reserve Chairman Ben Bernanke is expected to give a speech at the end of the week that could also provide further clues about what the Fed might do to help stimulate growth. At a meeting earlier this month, the Fed decided to reinvest money it received from selling mortgage-backed securities into Treasury bonds. The move was aimed at keeping interest rates low to try and bolster lending.

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