U.S. Stocks Retreat on Concern Economic Slump Is Worsening

By Lynn Thomasson

Oct. 27 (Bloomberg) -- U.S. stocks tumbled in the last half hour of trading after shifting between gains and losses all day, pulled lower by commodity producers as investors speculated a global recession will damp demand for fuel and metals.

Schlumberger Ltd., the biggest oilfield services contractor, slid 8.9 percent and Occidental Petroleum Corp. lost 7.9 percent as crude fell to the lowest since May 2007. U.S. Steel Corp. tumbled 11 percent after UBS AG advised selling the shares. General Motors Corp. sank 8.4 percent as the largest U.S. carmaker's debt rating was cut by Moody's Investors Service. The Standard & Poor's 500 Index extended its October retreat to 27 percent, its worst monthly decline since 1931.

``There's no doubt we're in a global economic slowdown,'' said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. ``People need to think about what level of risk is going to help them sleep at night.''

The Standard & Poor's 500 Index slipped 27.85 points, or 3.2 percent, to 848.92. The Dow Jones Industrial Average slid 203.18, or 2.4 percent, to 8,175.77. The Nasdaq Composite Index retreated 46.13, or 3 percent, to 1,505.9. More than eight stocks fell for each that rose on the New York Stock Exchange.

The S&P 500 swung between gains and losses at least 20 times as Huntington Bancshares Inc. led a rally in regional banks that accepted $34 billion in government cash. The benchmark index for U.S. equities is down 42 percent in 2008. More than 1.3 billion shares changed hands on the NYSE, 8 percent below the average volume for the last three months.

`Distressed Sellers'

The drop followed declines overseas that sent France's benchmark index down 4 percent and Hong Kong's down 13 percent.

The Chicago Board Options Exchange Volatility Index, or VIX, a gauge of how much investors are paying for insurance against S&P 500 declines, climbed 1.2 percent to 80.06, a second straight closing record.

``There are still distressed sellers who want to get out on any strength,'' said Jeffrey Davis, chief investment officer at Lee Munder Capital Group in Boston, which manages $4.3 billion.

Schlumberger retreated $4.24 to $43.28. Occidental Petroleum lost $3.61 to $42.08. Crude declined 1.4 percent to close at $63.22 a barrel in New York, then slid to $62.46 in extended electronic trading. Gasoline, natural gas and heating oil also declined.

U.S. Steel tumbled $3.86 to $30.82. The second-largest producer of the metal was cut to ``sell'' from ``buy'' at UBS analysts, who said they are ``increasingly cautious'' on earnings as conditions in the U.S. worsen.

GM Slumps

General Motors sank 50 cents to $5.45. Moody's lowered the company's credit rating to Caa2, eight grades below investment quality. GM may run out of money by mid-2009 without a cash infusion via a federal loan, a capital-infusing merger combined with cost cuts, or the sale or securitization of part of the company, Moody's said.

Loews Corp. had the biggest drop in at least 28 years, falling 18 percent to $25.65. The holding company run by New York's Tisch family had to inject $1.25 billion into insurance unit CNA Financial Corp. after it posted a third-quarter loss on investment declines and hurricane claims. CNA, which is 90- percent owned by Loews, suspended its dividend for common shares today after a loss of $331 million in the period ended Sept. 30. CNA plunged 33 percent to $11.90.

`Real Story'

Regional banks in the S&P 500 climbed 1.6 percent as a group after the Treasury rolled out the second half of its $250 package to shore up lenders.

Huntington Bancshares increased 15 percent to $9.17. First Horizon National Corp., Tennessee's biggest bank, surged 11 percent to $9.58. Fifth Third Bancorp increased 5 percent to $8.47.

``The real story this week is going to be the implementation of these credit-easing measures,'' Marshall Front, who oversees $700 million as chairman of Front Barnett Associates in Chicago, said in a Bloomberg Television interview.

Verizon Communications Inc. had the biggest advance since 2000, surging 10 percent to $27.61, after third-quarter profit rose 31 percent on an increase in subscribers and sales of more expensive services. Sales climbed 4.1 percent to $24.8 billion, topping the average analyst estimate, based on Bloomberg data.

Earnings Watch

Humana Inc. plunged the most since March, losing 15 percent to $30.80. The second-biggest provider of U.S.-funded health insurance reported a 39 percent decrease in quarterly profit on rising costs in its drug plans for the elderly and investments in financial companies.

The companies in the S&P 500 that reported third-quarter earnings so far posted a 23 percent decline on average, according to Bloomberg data. A profit drop for the entire index would mark the fifth straight quarterly decline, the longest stretch since the burst of the dot-com bubble at the start of this decade.

Wal-Mart Stores Inc., the world's largest retailer, slipped 3.4 percent to $49.67. Chief Executive Officer H. Lee Scott said customers are being ``more cautious and more thoughtful about what they buy'' because of the U.S. economic slump.

U.S. gross domestic product probably contracted at a 0.5 percent annual rate from July to September, the biggest drop since the 2001 recession, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures on Oct. 30. Consumer spending, the biggest part of the economy, probably dropped by the most in almost two decades as job losses mounted, stock prices sank and property values plummeted.

Futures on the Chicago Board of Trade show a 28 percent chance the Fed will lower its target for overnight bank loans, now 1.5 percent, by 75 basis points. That's up from no chance a week ago. Odds for a half-point cut are 72 percent.

Fed Watch

European stocks fell for the fifth straight day, with the Dow Jones Stoxx 600 Index dropping 1.9 percent. Asian stocks slumped for a fourth day.

In the first signs of a bank run in the Persian Gulf, customers rushed to withdraw money from Gulf Bank KSC, Kuwait's second-biggest bank, after clients defaulted on currency contracts and the central bank was forced to guarantee deposits.

All 48 of the developed and emerging markets tracked by MSCI have fallen in 2008, with 22 losing at least half their value as of last week. Benchmark indexes for Russia, China, Greece, Ireland, Peru and Austria have retreated more than 60 percent and the S&P 500 is down 40 percent.

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