Stocks dip in rough session

Wall Street slumps as talks about a possible GM bailout begin.

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By Alexandra Twin, senior writer

Which should be the Obama administration's priority?
  • Stimulating the economy
  • Reducing the budget deficit

NEW YORK ( -- Stocks slipped in a volatile session Monday, as investors eyed Citigroup's massive job losses and a weak manufacturing report, while awaiting the fate of a potential bailout for the automakers.

The Dow Jones industrial average (INDU) lost 223 points, or 2.6%. The Standard & Poor's 500 (SPX) index fell 2.6%.

The Nasdaq composite (COMP) lost 2.3% and ended at a fresh 5-1/2 year low.

Stocks tumbled through the morning but turned higher near midday before retreating again in the afternoon.

Trading volume was light, with investors holding back ahead of some key economic reports due later in the week and the hearings on the future of the automakers.

"Nobody knows what to do right now," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. "We know we're in a recession but we don't know how long it's going to last."

"If you're looking longer term, you might want to get in," he said. "But for someone with a shorter-term horizon, there's no reason to get off the sidelines right now."

He said that in the short term, Wall Street is focused on what's going to happen with the Big Three.

Stocks slumped Friday, with investors abandoning a recovery attempt, as the worst retail sales on record ignited fears of a long recession. It was a rough end to a down week for Wall Street, with the Dow losing 5%, the S&P losing 6.2% and the Nasdaq losing 7.9%.

"What I'd like to see the rest of this week is a series of small moves, rather than triple-digit days," said Michael Church. "We need to see some of the volatility get wrung out."

He said that if the market could manage to have a mild week, it would set it up for a year-end rally.

"At this point, so much of the bad news is factored in, that some good news might jolt the market," he said.

Automakers: Congress is debating this week whether to bail out the hard-hit industry with an additional $25 billion in support on top of the $25 billion General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler have already received. The money would come from the $700 billion bank bailout plan and a vote is expected as soon as Wednesday. (Full story)

GM shares added 5.6%, while Ford lost 4.4%.

The Bush administration opposes taking money from the bailout to help the automakers, and wants to see it come from a Department of Energy program already approved to develop fuel-efficient vehicles. President-elect Barack Obama said Sunday that he thinks aid for the sector is needed, but that it needs to be designed as a long-term strategy, not as a blank check.

Financials: Citigroup (C, Fortune 500) said it's cutting over 50,000 jobs in its latest effort to trim costs amid the credit crisis and economic slowdown. The New York-based bank has already slashed its payrolls by around 23,000 over the last year.

Citi said that in addition to job cuts, it is looking to cut expenses by about 20%, and that it has already cut its assets by over 20% since the first quarter of 2008. Shares fell 6.6%. (Full story)

Over the weekend, Goldman Sachs (GS, Fortune 500) said seven top executives, including the company's chief executive, have opted out of receiving cash or stock bonuses this year as a result of the ongoing credit crisis. Shares fell 6.4%.

UBS (UBS) said Monday that in 2008 it will stop making bonus payments to top executives and that next year it will not pay a bonus to its chairman. In addition, in 2009, top executives will be penalized if the bank performs badly. Shares gained 1.7%.

Other financial services firms could follow suit.

Prudential (PRU, Fortune 500) and a variety of other insurers slumped as they awaited news on whether they too will be awarded a piece of the $700 billion bank bailout plan.

Other corporate news: Target (TGT, Fortune 500) reported a steep decline in third-quarter earnings that met estimates and a rise in revenue that was short of forecasts. Like many retailers, the company has seen weaker sales amid a consumer spending slowdown. Shares slipped 4%.

Lowe's (LOW, Fortune 500) reported weaker quarterly earnings that topped forecasts. However, the home improvement retailer also forecast fourth-quarter earnings that were short of analysts' expectations. Shares gained 8.7%.

Market breadth was negative. On the New York Stock Exchange, losers beat winners three to one on volume of 1.31 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of 1.89 billion shares.

Economic news: Monday's economic news brought further indications that the economy may be in recession.

The New York Empire State index, a regional reading on manufacturing, worsened to negative 25.4 in November from negative 24.6 in October. That was short of forecasts for a reading of negative 26 but still brought the index to the lowest point in its seven-year history. Anything negative implies weakness, anything positive suggests growth.

Another report showed industrial production grew more than expected in October after September's dropoff, the worst in 62 years. Capacity utilization increased a bit short of forecasts.

Reports are due later in the week on producer and consumer prices, housing starts and building permits, leading economic indicators and the minutes from the last Federal Reserve meeting.

The U.S. is in a recession and likely to stay in a recession for quite some time, according to a majority of economists surveyed by the National Association for Business Economics.

Over the weekend, Japan said it is in recession, joining Europe and other nations.

Other markets: Asian markets ended mixed and European markets slipped in afternoon trade.

The dollar fell against the euro, but gained versus the yen.

COMEX gold for December delivery fell 50 cents to settle at $737.40 an ounce.

U.S. light crude oil for December delivery eased $2.05 to settle at $54.95 a barrel on the New York Mercantile Exchange, the lowest close since January 2007.

Gasoline prices dipped another 1.8 cents to a national average of $2.087 a gallon, according to a survey of credit-card activity released Monday by motorist group AAA. The decline marks the 61st consecutive day that prices have decreased. During that time, prices dropped by $1.77 a gallon, or 45.8%.

Bonds: Treasury prices gained, lowering the yield on the benchmark 10-year note to 3.67% from 3.72% late Thursday. Treasury prices and yields move in opposite directions.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, fell to 0.09 from 0.12% Friday, with investors preferring to take a piddling return on their money than risk the stock market. In September, the 3-month yield reached a 68-year low around 0% as investor panic peaked. To top of page

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