Stocks Reverse Course to Finish Lower

Major indexes were unable to sustain Thursday's early gains amid investor concerns about Obama's budget

U.S. stocks closed lower Thursday, reversing earlier gains. Investors worried that President Obama's budget proposal would hurt profits in certain key industries. Health insurers and drug stocks skidded as Obama called for expanding healthcare coverage and cutting Medicare payments.

SLM Corp. (SLM) sank on concerns the administration will end fees paid to banks that provide student loans.

Investors eyed another dismal round of U.S. economic data: Initial jobless claims rose 36,000 to 667,000, continuing claims rose 114,000 to record 5,112,000, January durable goods orders plunged 5.2%, and January new home sales fell 10.2% to a 309,000 unit annual pace.

On Thursday, the 30-stock Dow Jones industrial average finished lower by 88.81 points, or 1.22%, at 7,182.08. The broad S&P 500 index shed 12.08 points, or 1.58%, to 752.82. The tech-heavy Nasdaq composite index dropped 33.96 points, or 2.38%, to 1,391.47.

NYSE breadth was 17-14 negative, while Nasdaq breadth was 17-10 negative.

Treasuries, the dollar index and gold futures fell along with stocks, but oil futures rallied.

President Obama proposed a $3 trillion-plus budget and stressed the need for shared sacrifice as he vowed to slash federal spending by $2 trillion. He acknowledged that "we must add to our debt in the short run" to restore American business vitality. But at the same time, he said lowering the debt in the longer-term would be the only responsible approach to the country's fiscal policies. Administration officials earlier told The Associated Press that the new blueprint predicts a whopping $1.75 trillion deficit in the current budget year.

White House economic adviser Paul Volcker said banks that are big enough to destabilize markets should be subjected to tighter regulatory oversight. Volcker suggests subjecting large banks to "particularly high" international standards for safety and soundness.

Volcker said the current crisis grew out of serious and unsustainable imbalances in the U.S. and world economy, and economic policy going forward must take "appropriate measures" to deal with that problem. He said risk management failed on Wall Street, and "lapses in financial regulation and supervision ... permitted institutional weaknesses to fester."

General Motors Corp. (GM) posted a fourth-quarter loss per share of $9.65, vs. $0.08 EPS one year earlier (both as adjusted) on a 34% revenue decline. Including special items (totaling $3.7 billion), the automaker posted a $15.71 fourth-quarter loss. Wall Street was looking for a loss of $7.40 per share. GM cited a dramatic deterioration in global economic and market conditions during the year, declining consumer confidence, and a 50-year low in per-capita auto sales in the U.S. GM also anticipates receiving a "going concern" opinion from its auditors in its 2008 Form 10-K.

Britain launched a scheme expected to insure more than 500 billion pounds ($712 billion) worth of banks' toxic assets as it aims to spur lending and avert having to fully nationalize top lenders. Reuters reported British retail banks with more than 25 billion pounds in eligible assets will have until March 31 to join the Asset Protection Scheme which will run for a minimum of five years and cover them against huge losses on their riskiest assets. Royal Bank of Scotland, already 70% owned by the taxpayer, said it would put 325 billion pounds of its assets into the scheme as it also announced the biggest loss in UK corporate history -- 24.1 billion pounds. The government also had to put in another 13 billion pounds into the bank. Lloyds Banking Group is expected to put in 200 billion pounds worth of risky assets into the scheme on Friday.

"The object of this is to provide that certainty and that confidence that will maintain lending and that's essential," said finance minister Alistair Darling.

UK gilt prices fell sharply after the announcement as stock prices rose on increased investor optimism.

In economic news Thursday, U.S. new home sales fell 10.2% to 309,000 in January, from a revised 344,000 rate in December (previously 331,000). That's a new record low pace and is well below the 325,000 rate markets expected though in like with our expected 310,000 pace. New home sales are down 48.2% over last January. November's pace was revised down to 380,000 from 388,000. Weakness was seen in three of the four regions, with only the Northeast reporting gains. The months' supply on the market rose to 13.3 from 12.2 previously, while the median price fell to $201,100 from $223,200 (revised from $206,500), and is now down 13.5% over last year.

U.S. jobless claims were up 36,000 at 667,000 for the week ended February 21, from the upwardly revised 631,000 (previously 625,000). Markets expected a much more modest increase to 635,000. Continuing claims surged another 114,000 to 5,112,000 in the week ended February 14, from 4,998,000 (previously 4,987,000), and are again the highest on record. The 4-week moving average rose 19,000, to 639,000 from 620,000.

New orders for durable manufactured goods plunged 5.2% in January, much worse than the 2.4% drop expected by the market. December orders were revised sharply lower, to a 4.6% drop from the 3.0% reported last month. Shipments, a more stable indicator, dropped 3.7%. Much of the damage to both was caused by motor vehicles, where orders dropped by 6.4% and shipments by 7.1%. The 35.3% drop in defense orders was also a major hit. But there were almost no areas of strength except for civilian aircraft, where orders rose 81.7% and shipments 16.7% as Boeing continues to rebound from its strike. Nondefense capital goods orders excluding aircraft fell 5.4%, and shipments were down 6.6%, a signal of even worse capital spending in early 2009 than expected.

Among othjer stocks in the news Thursday, Forest Laboratories (FRX) said a complaint was filed against the company by the U.S. in federal court alleging violations of the federal False Claims Act arising from Forest's marketing of its antidepressants Lexapro and Celexa. The complaint alleges Forest personnel improperly promoted Lexapro, Celexa for off-label pediatric use, and that Forest paid kickbacks to physicians to induce them to prescribe these drugs. Forest also understands that 11 states and the District of Columbia have also filed notices of intention to intervene as plaintiffs in the action.

Fluor Corp. (FLR) posted $1.04 vs. $1.41 fourth-quarter EPS as inclusion of a year ago's $0.68 benefit from final settlement of an IRS income tax audit for certain prior years offset a 29% revenue rise. Wall Street was looking for EPS of $0.92. The company said fourth-quarter operating profit rose 30% primarily due to growth in the Oil & Gas segment. Fluor maintains its previously issued 2009 EPs guidance of $3.90-$4.20. (CRM) posted $0.11 vs. $0.06 fourth-quarter GAAP EPS on 34% higher revenue. The company sees about $0.10-$0.11 first-quarter GAAP EPS on about $304 million in revenue; it sees $0.54-$0.55 fiscal 2010 GAAP EPS, and updated its revenue guidance to $1.30B-$1.33B.

International Shipholding Corp. (ISH) says its Special Committee announced that it has concluded its previously-announced review of strategic alternatives, with the assistance of its independent financial adviser, Lazard. After evaluating range of strategic alternatives, the committee decided recommends that, at this time, International Shipholding remain independent and continue to execute its business strategy.

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