Stock sell-off intensifies

Major gauges fall for second session as investors eye drop in confidence index, weak housing report, more signs of mortgage and credit market turmoil.

By Alexandra Twin, senior writer

NEW YORK ( -- Stocks slumped early Tuesday afternoon, building on the previous session's decline, as investors mulled dour reports on housing and consumer confidence and further signs of turmoil in the mortgage and credit markets.

The Dow Jones industrial average (down 152.09 to 13,170.04, Charts) lost 1.1 percent 2-1/2 hours into the session, while the broader S&P 500 (down 19.02 to 1,447.77, Charts) index lost 1.3 percent. The tech-fueled Nasdaq Composite (down 34.35 to 2,526.90, Charts) lost 1.3 percent.


Stocks fell Monday on a weak July existing home sales report. Tuesday brought more evidence of erosion in the sector after a Standard & Poor's report showed that home prices fell 3.2 percent in the second quarter versus a year ago.

A separate report showed consumer confidence slumped in August to a nearly 2-year low, reflecting a brutal summer on Wall Street in which stocks slumped amid worries about the credit and mortgage markets and oil prices surged.

After bottoming out in mid-August, stocks rallied back last week on hopes that the Federal Reserve will intervene to keep liquidity flowing. (For more details, click here.)

"We had a strong rally off the bottom in the last week or so," said Timothy Ghriskey, chief investment officer at Solaris Asset Management. "The pullback we've seen this week is a little profit taking in what is an extremely slow period for the markets."

He said that many Wall Street professionals were now taking vacations after deferring them in early August due to the market turmoil.

Around 2:00 p.m. ET, the minutes from the Aug. 7 Federal Reserve policy meeting will be released.

Although of interest to investors, the backwards-looking minutes are particularly dated this time, since the Fed seemingly made changes to its outlook shortly after the last meeting.

In the days after, the Fed joined central banks around the world in injecting billions into the banking system, to cool markets, and also cut the discount rate, which affects bank loans. Investors are now hoping that the central bank will also cut the federal funds rate - which impacts consumer loans - at its next policy meeting in September.

"We think the Fed will ease the fed funds rate by 25 basis points at the September meeting," Ghriskey said. There are 100 basis points in a percentage point.

Ghriskey said that while a cut would appease the markets, it wouldn't necessarily suggest a big change in fed policy. "If the economy picks up enough steam, they could end up lifting rates again," he said.

Also weighing on stocks Tuesday: more problems for the financial sector amid the credit market turmoil.

State Street (down $2.01 to $61.87, Charts, Fortune 500) fell 5 percent on reports that the money manager has exposure to $22 billion of asset-backed commercial paper conduits, the kind of assets that have hurt European rivals recently, according to a report published in British paper The Times.

European bank Barclays (down $1.56 to $47.38, Charts) also slipped on reports that it may have exposure to several hundred millions of dollars of failed debt, reported. However, Barclays has denied this.

In addition, Merrill Lynch reportedly downgraded Citigroup (down $1.21 to $46.58, Charts, Fortune 500), Lehman Brothers (down $2.42 to $55.33, Charts, Fortune 500) and Bear Stearns (down $2.36 to $109.84, Charts, Fortune 500), according to

In other corporate news, Warren Buffett's Berkshire Hathaway has reportedly bought another 10 million shares in Burlington Northern Santa Fe (down $0.32 to $80.01, Charts, Fortune 500).

Additionally, MedcoHealth Solutions (up $0.11 to $86.22, Charts, Fortune 500), a pharmacy benefits manager, said it will buy PolyMedica (up $6.41 to $51.70, Charts), a diabetes treatment supplier, for $1.5 billion. Medco shares were little changed, while PolyMedica shares jumped 14 percent.

Market breadth was negative. On the New York Stock Exchange, losers beat winners five to one on volume of 500 million shares. On the Nasdaq, decliners topped advancers by more than 3 to 1 on volume of 640 million shares.

Treasury prices rose, lowering the yield on the 10-year note to 4.53 percent from 4.57 percent late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was little changed versus the euro and eased against the yen.

U.S. light crude oil for October delivery fell 50 cents to $71.47 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $2.20 to $674 an ounce. Top of page