Stocks slump on recession fears

ROAD TO RESCUE

• Home prices up for 1st time in 3 years
• New home sales: 'Really good news'
• Wall Street: Here comes the hard part
• 7 regional banks fail
• Banker: "TARP helped avert a global calamity"

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NEW YORK (CNNMoney.com) -- Stocks slipped Friday morning as a weak housing market report exacerbated recession fears - overshadowing Google's earnings and bullish comments from influential investor Warren Buffett.

The Dow Jones industrial average (INDU) lost 178 points, or 2%, in the early going. The Standard & Poor's 500 (SPX) index fell 2.1% and the Nasdaq composite (COMP) lost 2%.

But Peter Cardillo, analyst for Avalon Partners, said stocks have potential for recovery later in the session.

"During the course of the day, we should expect more volatility, and I wouldn't be surprised if the Dow added to its gains," said Cardillo.

That follows a volatile Thursday, which ended with Dow surging 401 points, driven by the lowest oil prices in more than a year, after having plunged as much as 380 points earlier in the day.

Economy: Weighing on Wall Street was a bigger-than-expected decline in September housing starts. The Commerce Department reported that initial construction of new homes fell to a seasonally adjusted annual rate of 817,000 last month - a fresh 17-year low.

Housing starts were expected to plunge to an annual rate of 870,000 residential units, according to a consensus of economists provided by the Briefing.com. That compared to an 895,000-unit rate in the prior month.

Building permits, which are considered a reliable sign of future construction activity, fell to a seasonally adjusted annual rate of 786,000 last month. That's 8.3% below the revised 857,000 rate in August.

Economists expected that reading to fall to 840,000 in September, according to the economist consensus from Briefing.com.

In a speech to the U.S. Chamber of Commerce Friday morning, President Bush stressed that the government was taking all the necessary steps to deal with the economic crisis.

Companies: Stronger-than-expected results from the Internet search giant Google (GOOG, Fortune 500) late Thursday could give the tech sector a lift during the trading session. The company reported higher profit in the most recent quarter despite headwinds in the economy. Shares rose 5% at the open.

Before Friday's opening bell, Honeywell (HON, Fortune 500), the maker of civil and military avionics and aerospace products, beat expectations when it reported quarterly earnings before the open. Earnings jumped about 20% to 97 cents per share from 81 cents a year earlier. A consensus of analyst opinion from Thomson FirstCall had expected 95 cents per share. Shares fell 5% at the open.

Oil services firm Schlumberger (SLB) reported a jump in profit and revenue Friday, helped by higher oil prices during the quarter. But with crude prices off their summer highs and the global economy, the firm offered a cautious outlook. Shares lost over 7% at the open.

Buffett: Billionaire investor Warren Buffett used a guest commentary article in the New York Times on Friday to announce that he's sticking with stocks.

Buffett said the fear surrounding the disastrous credit crisis, which has dropped stocks about 36% from their all-time highs set around this time last year, has left equities with attractive purchasing prices.

Markets, currency, oil: European markets were higher in midday trading, and the Nikkei closed about 2.8% higher. The dollar edged lower against the euro, but was higher against both the British pound and the yen. Oil prices bounced back from their lows, climbing 61 cents a barrel to $70.46.