Credit market woes hit stocks
Wall Street tumbles while bonds rally after news of more bank troubles and a surge in foreclosures. Falling dollar sends oil to all-time high. Jobs report on tap for Friday.
NEW YORK (CNNMoney.com) -- Stocks tanked and bonds rallied Thursday as investors eyed the latest wave of credit market woes and opted to dump equities and scoop up the relatively safer government debt.
The dollar fell to another all-time low against the euro, which helped push oil prices to a record near $106 a barrel. Gold pulled back after edging closer to the $1,000 an ounce milestone in the previous session.
The Dow Jones industrial average (INDU) lost over 200 points, or 1.8%. The broader Standard & Poor's 500 (SPX) index tumbled 2.2%, and the Nasdaq composite (COMP) fell 2.3%.
The credit market crisis "is an ongoing problem that's not going away any time soon," said Ryan Atkinson, market analyst at Balestra Capital.
A report showing foreclosures hit an all-time high in the last 3 months of 2007 added to the day's jitters, sparking selling in government mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500).
Fannie Mae and Freddie Mac's recent liquidity issues have caused the stock selling to intensify, Atkinson said, because they're supposed to be just slightly less safe than traditional safe-haven government debt.
"When you're seeing things that are basically bulletproof getting hit, that causes this kind of market anxiety," he said.
After the close of trade, Citigroup (C, Fortune 500) said it was shaking up its residential mortgage business, cutting assets by $45 billion or 20% and cutting in half the number of loans to be held in its portfolio in the next year. (Full story).
Friday brings the big economic news of the month, the February employment report. Employers are expected to have added 25,000 jobs to their payrolls after cutting 17,000 from their payrolls in January. The unemployment rate, generated by a separate survey, is expected to have risen to 5% from 4.9% in the previous month. Average hourly earnings, the report's inflation component, is expected to have risen 0.3% after rising 0.3% in the previous month.
Financials tumble. Merrill Lynch (MER, Fortune 500) slumped 7% after it said it will stop issuing subprime mortgages through its First Franklin Financial subsidiary. The company plans to cut 650 jobs at First Franklin and said it is looking to sell the unit's mortgage servicing unit.
Thornburg Mortgage (TMA) plunged 51.5% on bankruptcy fears after the residential mortgage lender said it had failed to meet a $28 million margin call and is now in default on $320 million in financing. Margin calls require borrowers to pay back loans or offer more collateral.
Mortgage real estate investment trusts (REITs) slid after Carlyle Capital Corp, a Dutch company that invests in mortgage-backed securities issued by Fannie Mae and Freddie Mac, missed margin calls and received a notice of default. Other mortgage REITS falling include Annaly Capital Management (NLY), MFA Mortgage Investments (MFA), Anworth Mortgage Asset Corp. (ANH) and Capstead Mortgage (CMO).
Washington Mutual (WM, Fortune 500) tumbled after S&P cut its credit rating on the mortgage lender, saying WaMu is facing bigger losses on bad home loan bets than the ratings agency had anticipated.
Additionally, reports suggest that Swiss bank UBS (UBS) may have sold off its $24 billion portfolio of mortgage-backed assets at so-called fire sale prices. However, analysts suggested the number was probably smaller, and bond fund PIMCO said reports that it had bought $24 billion in bonds were an "exaggeration," Reuters reported.
Economic news. The number of households in foreclosure hit an all-time high in the last quarter of 2007, according to a survey by the Mortgage Bankers Association released Thursday. (Full story).
Another report showed that homeowners' debt on their houses beats their equity for the first time since 1945. (Full story).
The pending home sales index was flat in January, leaving the number of homes under contract for sale in the month just above the record low, according to the National Association of Realtors. (Full story).
A separate report showed the number of American workers filing new claims for unemployment benefits fell last week, while the number of continuing claims remained high. (Full story).
Retail sales. The nation's retailers generally saw some improvements in February, after weak sales the previous two months. Among the standouts, both Wal-Mart Stores (WMT, Fortune 500) and rival Target (TGT, Fortune 500) posted better-than-expected sales at stores open a year or more, a retail sector metric known as same-store sales. (Full story).
American Eagle Outfitters (AEO) reported a 4% drop in February same-store sales and warned that first-quarter profit won't meet forecasts. Shares fell 17.5%
Tech news. Apple (AAPL, Fortune 500) announced software updates to its iPhone to make it more business friendly, in a challenge to Research in Motion's Blackberry wireless device.
Oracle (ORCL, Fortune 500) gained 2.3% in active Nasdaq trade after it was upgraded to "buy" from "neutral" at Merrill Lynch.
Market breadth was decisively negative. On the New York Stock Exchange, losers topped winners roughly 7 to 1 on volume of 1.62 billion shares. On the Nasdaq, decliners beat advancers almost 4 to 1 on volume of 2.25 billion shares.
Other markets. U.S. light crude oil for April delivery rose 95 cents to settle at $105.47 a barrel on the New York Mercantile Exchange, an all-time high. Earlier, oil hit an all-time trading high of $105.97 a barrel.
Oil prices have been boosted by the weak dollar and supply worries. OPEC said Wednesday it won't boost production levels, and a government report showed U.S. crude supplies dropped in the latest week.
Gold prices, along with other dollar-traded commodities, have also been surging in response to the weak greenback. But after a big rally, prices backed off a bit. COMEX gold for April delivery fell $11.40 to settle at $977.10 an ounce.
Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.58% from 3.69% late Wednesday. Bond prices and yields move in opposite directions.
In currency trading, the dollar fell versus the euro, but was off its record lows. The dollar also fell against the yen. The dollar's recent slide intensified Thursday after the European Central Bank and the Bank of England opted to hold interest rates steady. 
