Aug. 14 (Bloomberg) -- U.S. stocks tumbled after Wal-Mart Stores Inc. cut its profit forecast, money managers continued to suspend investor redemptions and the Fortress Investment Group LLC hedge fund said takeovers have dried up.

Home Depot Inc., Pulte Homes Inc. and Countrywide Financial Corp. led the Standard & Poor's 500 Index to the lowest level since April and trimmed its 2007 gain to less than 1 percent as concern grew mortgage losses will squeeze credit and strain consumer spending. Wal-Mart, the world's biggest retailer, fell the most since 2002 after Chief Executive H. Lee Scott said Americans face ``difficult pressure economically.''

The S&P 500 dropped 26.38, or 1.8 percent, to 1426.54, cutting this year's rise to 0.6 percent. The Dow Jones Industrial Average lost 207.61, or 1.6 percent, to 13,028.92, also the lowest since April. The Nasdaq Composite Index decreased 43.12, or 1.7 percent, to 2499.12.

Consumer stocks posted the biggest retreat among 10 industry groups in the S&P 500, bringing their 2007 loss to 7.3 percent; only financial shares have fallen more. Thornburg Mortgage Inc. shares were halted from trading after plunging 47 percent following downgrades by five brokerages.

``Until these issues are settled, the market will bounce around,'' said Gordon Fowler, who helps manage $6 billion as chief investment officer at Glenmede Investment Management in Philadelphia. ``The consumer economy has been slowing down for a while now and it's probably tied to what's been going on in the housing market.''

Wal-Mart, Home Depot

Wal-Mart shares lost $2.35, or 5.1 percent, to $43.82. The company also reported second-quarter profit that rose less than analysts anticipated. Full-year earnings will be as much as $3.13 a share, 10 cents lower than its earlier forecast, after sales of apparel and home goods faltered, the company said.

Home Depot tumbled $1.72 to $33.52, its lowest since August 2006. The largest home-improvement retailer said the housing slump, turmoil in credit markets, and higher energy prices will depress earnings this year. Second-quarter net income dropped 15 percent to $1.59 billion. Total sales retreated 1.8 percent to $22.2 billion, the first decline in four years.

Other retailers also decreased, sending the S&P 500 Consumer Discretionary Index down 2.7 percent. RadioShack Corp., the third-largest U.S. consumer-electronics retailer, slumped $1.57 to $22.

The S&P 500 Diversified Financials Index fell 2.6 percent to its lowest level since July 2006.

Lehman, Goldman Sachs

Lehman Brothers Holdings Inc., the biggest underwriter of U.S. mortgage bonds, declined $3.63 to $53.67 and the company posted its worst four-day loss since September 2001. Goldman Sachs Group Inc., the largest securities firm, dropped $7.75, or 4.4 percent, to $169.75, its biggest drop since October 2002.

Sentinel Management Group Inc., the Illinois-based cash- management firm that oversees $1.6 billion, froze client withdrawals after saying that credit-market turmoil made it impossible to trade.

Sentinel, based in the Chicago suburb of Northbrook, said it contacted the Commodity Futures Trading Commission for approval to halt redemptions ``until we can honor them in an orderly fashion,'' according to an Aug. 13 client letter posted on TheStreet.com Web site. Regulators said the firm never made such a request.

CME Group Inc., the world's largest futures exchange, said Sentinel told the CFTC the firm would stop accepting redemptions.

Eric Bloom, Sentinel's president and chief executive officer, didn't return phone calls seeking comment.

`Very Cautious'

``We don't know the magnitude of the problem right now, so people are very, very cautious,'' said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio.

Hedge funds run by Bear Stearns Cos., Basis Capital Funds Management Ltd., Absolute Capital Management Holdings Ltd. and BNP Paribas SA have also suspended withdrawals in the last month.

Fortress Investment dropped $1.35, or 6.6 percent, to $19.22. The company's second-quarter net loss widened to $55 million because of compensation costs tied to its IPO and its chief executive predicted takeovers will be hindered by credit- market losses.

``I don't expect to see a lot of buyout activity in the next month, or even two, until the debt markets return to a more normalized pattern,'' Chief Executive Officer Wesley Edens said on a conference call with investors.

Countrywide

Countrywide lost $2.15, or 8.1 percent, to $24.46 for the second-steepest decline in the S&P 500. The biggest U.S. mortgage company led shares of home lenders lower on concern bankers will cut off cash as foreclosures and overdue payments surge nationwide.

``The mortgage market is just not working,'' analyst Robert Napoli of Piper Jaffray Cos. said in a note to clients.

Citigroup Inc. declined 85 cents to $45.70 after analysts at Sanford C. Bernstein & Co. said the biggest U.S. bank may forfeit as much as $1 billion in third-quarter profit because of credit- market losses in mortgages and high-yield debt.

Financial shares also fell after ratings company DBRS said 17 Canadian asset-backed commercial paper issuers, including Coventree Inc., are seeking back-up financing from banks after failing to sell their short-term debt.

Real-estate investment trusts dropped after Merrill Lynch & Co. cut 10 companies to ``sell'' because of credit market losses, stricter lending standards and a weaker economy. ProLogis, the biggest publicly traded industrial developer, fell $3.44 to $53.62.

CB Richard Ellis

CB Richard Ellis Group Inc. tumbled the most since its June 2004 IPO, losing $3, or 9.7 percent, to $28. The largest commercial real-estate broker by market value was cut to ``hold'' from ``buy'' by S&P stock analyst Robert McMillan. Higher rates for commercial real estate financing will ``likely hurt a sizeable part'' of the company's business, he wrote.

Thornburg fell $6.67, or 47 percent, to $7.61. The mortgage company for borrowers with high credit ratings said after the close of trading that it is exploring the sale of mortgage assets and will postpone its dividend, capping a day in which the shares lost nearly half their value after five brokerages downgraded the stock.

Homebuilders

Homebuilding companies in S&P indexes collectively lost 4.5 percent for the biggest three-day loss in six years. Beazer Homes decreased $1.01 to $11.33 after Fitch Ratings downgraded some of the company's debt and Moody's Investors Service said it may lower its rating on the homebuilder. Pulte Homes fell $1.10 to $17.76.

Mattel Inc. dropped 57 cents to $23. The world's largest toymaker is recalling Chinese-made products for the second time in two weeks on concerns children will swallow magnets attached to the toys.

VMware Inc. surged $22 to $51. The software business majority-owned by EMC Corp. rose as much as 91 percent in its first day of trading. Yesterday, VMware sold 33 million shares for $29 each, the top end of its forecast range.

The Labor Department said prices paid to producers climbed 0.6 percent in July, more than economists' forecasts of a 0.2 percent gain in a Bloomberg survey. So-called core producer prices that exclude fuel and food rose 0.1 percent, the smallest gain in three months and less than the 0.2 percent forecast by economists.

Trade Gap

The trade gap narrowed 1.7 percent to $58.1 billion in June from a revised $59.2 billion in May that was smaller than previously estimated, the Commerce Department said. The deficit with China grew. Exports rose 1.5 percent to $134.5 billion in June, propelled by sales of petroleum products, semiconductors and automobiles. Imports increased 0.5 percent to $192.7 billion, also the highest ever.

The European Central Bank said it will offer cash to banks for a fourth trading day, extending efforts by the Federal Reserve and other central banks to avert a crisis of confidence.

More than 7 stocks fell for every one that gained on the New York Stock Exchange. Some 1.8 billion shares changed hands on the Big Board, 2.9 percent more than the three-month daily average.

In other markets, yields on 10-year Treasury notes declined 0.04 percentage point to 4.73 percent. Crude oil for September delivery gained 76 cents to $72.38 a barrel in New York.

The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, lost 2.2 percent to 762.87. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 1.9 percent to 14,360.33.

Beazer Homes USA Inc. (BZH US)
CB Richard Ellis Group Inc. (CBG US)
Citigroup Inc. (C US)
Countrywide Financial Corp. (CFC US)
Fortress Investment Group LLC (FIG US)
Goldman Sachs Group Inc. (GS US)
Home Depot Inc. (HD US)
Lehman Brothers Holdings Inc. (LEH US)
Mattel Inc. (MAT US)
ProLogis (PLD US)
Pulte Homes Inc. (PHM US)
RadioShack Corp. (RSH US)
Thornburg Mortgage Inc. (TMA US)
VMware Inc. (VMW US)

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

Last Updated: August 14, 2007 18:48 EDT