Housing slowdown hits stocks

NEW YORK (CNNMoney.com) -- Stocks slipped early Friday after a government reports showed new home construction slowing sharply, raising fears the sector might be a drag on the overall economy.

The Dow Jones industrial average (down 9.94 to 12,755.07, Charts) fell slightly, while the broader S&P (down 2.47 to 1,454.34, Charts) 500 index declined about 0.3 percent in the early going.

The tech-fueled Nasdaq (down 6.79 to 2,490.31, Charts) composite lost about 0.5 percent.

The Census Bureau reported that housing starts plunged in January, coming in much weaker than forecasts. New homes started in January fell 14.3 percent to an annual rate of 1.41 million from the 1.64 million pace in December. Economists surveyed by Briefing.com had forecast a 1.6 million rate for January.

The news comes on top of a separate study Thursday showing the biggest drop in home prices ever in the fourth quarter.

The news sparked fears that the overall housing slowdown may be far from over, putting a drag on the economy as construction spending slows and discretionary cash for consumers dries up.

Elsewhere on the economic front, the government also reported that wholesale prices fell in January by 0.6 percent on lower energy prices after a 0.9 percent jump in December. It was the largest decline in three months.

Economists surveyed by Briefing.com forecast that wholesale prices fell 0.6 percent on lower energy prices after a 0.9 percent jump in December.

In corporate news, shares of Dow component Microsoft (Charts) fell about 2 percent in early trading after CEO Steve Ballmer said Thursday that analysts' forecasts for revenue from Windows Vista in fiscal 2008 were "overly aggressive."

Birmingham, Ala.-based Compass Bancshares (Charts) agreed early Friday to be purchased for $9.6 billion by Spanish bank Banco Bilbao Vizcaya Argentaria in a cash and stock deal that will pay either an 8.2 percent premium in cash or 10.6 percent premium in the Spanish bank's U.S. shares, based upon Thursday's close. Compass shares rose about 6 percent.

AMR Corp. (Charts), parent of No. 1 carrier American Airlines, rose over 2 percent after Business Week reported late Thursday that it might be a buyout target of a group including Goldman Sachs and British Airways (Charts).

Overseas, stocks in Asia closed mixed ahead of the Lunar New Year that will close most markets in the region on Monday and some for longer periods. Stocks in Europe were little changed in the early going.

Oil was lower. U.S. light crude rose 28 cents to $58.27 a barrel in electronic trading.

Treasury prices were slightly higher, with the U.S. 10-year note yield slipping to 4.69 percent from 4.7 percent late Thursday. The dollar was stronger against the euro and the yen in early trading.

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