By Michael Patterson
June 30 (Bloomberg) -- Most U.S. stocks fell for a third day, capping the market's worst month in six years, on concern that deepening mortgage losses will force more banks to cut dividends or sell shares at a discount.
Wachovia Corp. tumbled to the lowest since 1992 after an analyst said the lender may cut its payout, while Merrill Lynch & Co. and Citigroup Inc. dropped as JPMorgan Chase & Co. said prices for some mortgage securities may sink further. Lehman Brothers Holdings Inc. plunged as traders speculated the fourth- largest U.S. securities firm may be sold for less than its market value. Devon Energy Corp. led gains in oil producers, which sent the Standard & Poor's 500 Index and Dow Jones Industrial Average higher, after analysts increased profit estimates through 2009.
``I really wouldn't fight the trend at this point,'' Malcolm Polley, who helps oversee about $1 billion as president and chief investment officer at Stewart Capital Advisors, said in Bloomberg Television interview from Pittsburgh. ``Earnings expectations are going to have to come back for the second half.''
The Dow pared its monthly retreat to 10.2 percent, still the biggest June loss for the 30-stock gauge since 1930. The measure dropped 7.4 percent since the end of March for its third-straight quarterly slide, the longest stretch of declines since 1978. The S&P 500 slid 3.2 percent during the quarter, while the Nasdaq increased 0.6 percent.
Stocks traded higher for most of the day as energy shares climbed and a gauge of business spending topped economists' forecasts.
Wachovia Drops
Wachovia dropped 69 cents, or 4.3 percent, to $15.53. Fox- Pitt Kelton Cochran Caronia Waller analysts said the fourth- largest U.S. bank is among the regional lenders ``most at risk'' for dividend cuts. Separately, the New York Post reported that Wachovia may have to buy back Prudential Financial Inc.'s stake in their joint retail brokerage venture. Wachovia spokeswoman Christy Phillips Brown wasn't immediately available to comment.
Citigroup, the biggest U.S. bank by assets, lost 49 cents to $16.76. Merrill, the nation's third-largest securities firm, fell 99 cents to $31.71.
Lehman Speculation
Lehman, which lost almost half of its market value this quarter, dropped $2.44, or 11 percent, to $19.81, the lowest since 2000.
``We're hearing that there may be a possibility of Lehman being taken over,'' said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $6 billion in San Antonio. ``There hasn't been any positive news on this firm for the last couple weeks and the value of the deal might not be in the best interest of Lehman shareholders.''
Andrew Gowers, a Lehman Brothers spokesman, said the company's policy is not to comment on rumors. Richard Fuld, Lehman's chief executive officer, said June 16 that the company didn't need to be acquired.
The Financial Select Sector SPDR Fund, a so-called exchange traded fund that tracks U.S. financial stocks, lost 1.5 percent to $20.26, the lowest since March 2003. The shares, known by their XLF ticker, were the second most-traded among stocks and ETFs in New York today.
JPMorgan analysts said subprime and Alt-A mortgage bonds, trading at or near record lows, may continue their declines as banks limit purchases of some securities and are forced to sell off what they hold.
Delinquencies Rise
Newly delinquent homeowners outnumbered those who caught up on overdue payments for a 26th straight month in May, the Mortgage Insurance Companies of America, which tracks loans to people who put down less than 20 percent, said today.
``A lot of people are fearing with these financials, as we hear these second-quarter earnings, that there's going to be a lot more writedowns,'' Scott Wren, an equity strategist at Wachovia Securities Inc., said in an interview on Bloomberg Television. ``There's a good possibility that's going to be the case.''
Devon Energy climbed $5.28 to $120.16. Friedman Billings Ramsey & Co. advised clients to buy shares of the country's largest independent oil and gas producer, saying it may announce a stock buyback and production boost when it releases second-quarter results.
Thomas Lee, JPMorgan Chase & Co.'s chief U.S. equity strategist, reiterated his recommendation that investors own more energy shares than are represented in benchmark indexes, saying crude prices will remain high. Oil for August delivery slipped 21 cents to settle at $140 a barrel in New York today.
Energy Rally
Oil companies also got a boost as money managers snapped up the market's best performers before the second quarter ends, according to Kevin Kruszenski, director of equity trading at Keybanc Capital Markets in Cleveland. Energy shares in the S&P 500 climbed 17 percent as a group in the second quarter, the top gain among 10 industries. Financial shares were the market's worst performers, falling 19 percent.
General Electric Co. rose 43 cents, or 1.6 percent, and helped lead a 0.9 percent gain in the S&P 500 Industrials Index.
The National Association of Purchasing Management-Chicago said today its business index increased to 49.6 this month, signaling a slower pace of contraction, from 49.1 in May. Fifty is the dividing line between growth and contraction. The figures reflect an increase in consumer spending this quarter spurred by federal tax rebates, and record exports aided by a weaker dollar.
Buybacks
H&R Block Inc. climbed 58 cents, or 2.8 percent, to $21.40. The biggest U.S. tax preparer reported its first quarterly profit in two years, boosted its dividend, and announced a $2 billion share repurchase plan.
Campbell Soup Co. added $1.28, or 4 percent, to $33.46. The world's largest soupmaker said it plans to buy back as much as $1.2 billion of stock by 2011. Earnings-per-share growth in the year through Aug. 3 may be at the upper end of the company's forecast of 5 percent to 7 percent, Campbell said.
More than $800 billion in announced buybacks last year helped the S&P 500 and Dow average climb to all-time highs in October. The pace has slowed as the U.S. housing slump spurred the longest steak of earnings declines for S&P 500 companies since 2002. U.S. companies announced $197 billion in planned buybacks this year through June 26, 52 percent less than during the same period last year, according to Birinyi Associates Inc.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
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