U.S. Stocks Fall on Drop in Payrolls, Extending Global Slump

By Lynn Thomasson

Sept. 5 (Bloomberg) -- U.S. stocks fell, adding to the worst week for global equities since 2002, as the nation's unemployment rate reached the highest level in five years and deepened concern that the world economy is slowing.

Bank of America Corp., Apple Inc. and DuPont Co. slid more than 1 percent after payrolls shrank by a higher-than-projected 84,000 in August. Merrill Lynch & Co. lost 5.4 percent and American International Group Inc. declined 4 percent on analysts' predictions that the companies will post more mortgage losses. Declines from Tokyo to the U.K. helped send the MSCI World Index down 5.5 percent this week on expectations credit losses and slumping oil and metal prices will reduce earnings at banks and commodity producers.

Stocks ``aren't likely to go up until we see some kind of turn in the economy and that turn wasn't in today's numbers,'' said John Davidson, president of PartnerRe Asset Management Corp., which oversees $12 billion in Greenwich, Connecticut. ``Earnings expectations are going to have to be revised lower.''

Treasuries rose and the dollar fell against the yen. The Standard & Poor's 500 Index lost 7.86 points, or 0.6 percent, to 1,228.97 at 9:38 a.m. in New York. The Dow Jones Industrial Average fell 63.42, or 0.6 percent, to 11,124.81. The Nasdaq Composite Index dropped 15.13 to 2,243.91. About five stocks fell for each that rose on the New York Stock Exchange.

The S&P 500, the benchmark index for American equities, lost 4 percent so far this week and is down 16 percent in 2008. Today's report showing an unemployment rate of 6.1 percent added to concern that the worst housing slump since the Great Depression and more than $500 billion in credit losses and writedowns at global banks are dragging the nation into a recession. Commodities producers tumbled this week amid expectations slowing growth will curb demand for oil and metals.

`Bear Market'

``We're clearly in a bear market,'' Simon Moss, who manages the equivalent of $4.1 billion as investment director of U.S. equities at Scottish Widows Investment Partnership in Edinburgh, said in a Bloomberg Television interview. ``There is no doubt the economy is slowing.''

Stocks in Europe and Asia fell today on concern weakening economic growth will curb earnings at semiconductor makers while credit-related losses at banks increase.

This week's losses threatened to erase the S&P 500's rebound from an almost three-year low set on July 15. The index is up 1.4 percent since then after rebounding as much as 7.4 percent.

Merrill Lynch, down 54 percent this year in New York trading, sank $1.33 to $24.88. Goldman added the company to its ``conviction sell'' list and lowered its share-price projection by 23 percent to $22.

Merrill Valuation

``Merrill currently trades at the highest price-to-book multiple in our large-cap brokerage universe, despite having some of the most significant exposures to troubled assets such as CDOs, mortgages and leveraged loans,'' analysts led by William Tanona wrote. ``With these markets still under pressure, we believe additional writedowns and book value deterioration will continue to plague the stock.''

New York-based Merrill, battered by more than $50 billion of credit market losses and writedowns, has sold mortgage-linked assets to reduce risk and free up capital. The company trades at 1.22 times book value, compared with 0.91 for Citigroup Inc., the only other firm that's lost more from the credit market crunch, according to data compiled by Bloomberg.

AIG retreated 77 cents to $20.45. The largest U.S. insurer may need to raise $15 billion to cushion further losses tied to the U.S. housing market, said Morgan Stanley analyst Nigel Dally.

SanDisk Corp. jumped 25 percent to $16.80. Samsung Electronics Co. said it may buy the memory-card maker in what would be the South Korean company's biggest acquisition. Samsung, which is the world's second-largest chipmaker after Intel Corp., said it's considering various options, including an acquisition.

UST Inc. added 24 percent to $66.86. Altria Group Inc., largest U.S. cigarette maker, is in talks to buy the nation's biggest snuff producer for more than $10 billion, the New York Times reported, citing people with knowledge of the discussions who weren't identified.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.