U.S. Stocks Drop, Led by Energy, Mining Companies; Hess Falls

By Elizabeth Stanton

Sept. 9 (Bloomberg) -- U.S. stocks fell, halting a two-day advance, after a decline in commodity prices dragged down energy producers and mining companies, and an analyst said Lehman Brothers Holdings Inc. may not sell its mutual-fund unit.

Valero Energy Corp., Devon Energy Corp. and Freeport- McMoRan Copper & Gold Inc. dropped at least 2 percent as oil touched a five-month low and copper slid for a fourth day. Lehman declined 14 percent after Ladenburg Thalmann & Co. analyst Richard Bove increased his loss estimate. US Airways Group Inc. added 4.8 percent after the retreat in crude below $105 a barrel boosted transportation companies.

The Standard & Poor's 500 Index decreased 2.35 points, or 0.2 percent, to 1,265.44 at 9:44 a.m. in New York. The Dow Jones Industrial Average slumped 6.6 to 11,504.14. The Nasdaq Composite Index climbed 6.16, or 0.3 percent, to 2,275.92.

Energy shares have lost 13 percent since the S&P 500 reached a 2 1/2-year low on July 15 as crude plunged 25 percent. The decline was overshadowed by a 31 percent rally in financial stocks, boosting the index by 4.4 percent.

The benchmark index for U.S. equities gained 2.1 percent yesterday, the most in a month, on speculation the takeover of Fannie Mae and Freddie Mac will help banks recover from $507 billion in losses from subprime securities.

Won't Last

Investors should sell stocks following the rally as economies in the U.S. and Europe remain weak, Credit Suisse Group said. The rebound is unlikely to last because the U.S. housing decline will continue, while Europe and the U.K. are ``close to recession,'' Credit Suisse's London-based analysts including Andrew Garthwaite said in a report dated yesterday.

Crude oil fell as much as 2.1 percent to $104.23 a barrel on the New York Mercantile Exchange as Saudi Arabia's oil minister said supplies are sufficient to meet demand, fueling speculation that OPEC will maintain production levels when it meets today.

Freeport-McMoRan, the largest publicly traded copper company, slipped 2.4 percent to $70.35. Copper lost 1.2 cents to $3.07 a pound on concern worldwide demand is slowing. Valero, the biggest independent oil refiner, slipped $1 to $33.60. Devon, the largest independent oil producer, fell $2.92 to $92.12.

Lehman lost $1.89 to $12.26. Chief Executive Officer Richard Fuld's decision to shuffle the top ranks of his firm for the third time in four months shows the company hasn't found an attractive price for Neuberger Berman, its mutual fund unit, Ladenburg's Richard Bove said in a note.

Loss Estimate

Bove widened his loss estimate for Lehman this year to $7.39 a share from an earlier prediction of a $6.33 loss per share. He reduced his profit forecast for Goldman Sachs Group Inc. to $12.60 a share from a previous estimate of $14.16 a share.

Financial stocks in the S&P 500 led the rebound since July 15, rising 31 percent on speculation the worst is over after more than $500 billion of credit market losses. Banks and brokerages in the S&P 500 are still down 23 percent for the year after losing 21 percent in 2007, the steepest decline in four decades.

Retailers, homebuilders and automakers gained 18 percent since the market's low, spurred by federal tax rebates and expectations the U.S. economy may avoid a recession. Gross domestic product expanded at a 3.3 percent rate in the second quarter, helped by exports and seven consecutive reductions in the Federal Reserve's target rate for overnight loans.

Stocks climbed yesterday on speculation the government takeover of Fannie Mae and Freddie Mac will stabilize the global financial system. The seizure lowered the cost of protecting corporate bonds from default and spurred a rally in the dollar.

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To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.