U.S. Stocks Slammed By Big AIG Loss

May 12,2008 00:00 by dow-jones

U.S. stocks fell on Friday as the financial sector spouted more leaks after American International Group Inc. reported a $7.8 billion loss and Citigroup Inc. unveiled plans to shed about half a trillion dollars in assets.

"AIG is a reminder that while the bulk of the stock market is in good shape, the financials and consumer discretionary stocks are still having some difficulties," said Phil Orlando, equity market strategist at Federated Investors.

Down more than 120 points early on, the Dow Jones Industrial Average (DJI) was more recently off 91.59 points, or 0.7%, to 12,775.19, with 22 of its 30 components posting declines.

Blue-chip losses were led by AIG (AIG), down 6.8%, following its larger-than-forecast loss, which led Standard & Poor's and Fitch to cut the insurance giant's credit rating.

The broader indexes were also lower, with the S&P 500 (SPX) shedding 8.17 points, or 0.6%, to 1,389.51. Materials led S&P sector declines, off 1.4%, followed by energy, down 1.2%, and health care, off 0.9%.

Crude-oil futures gained $1.09 to $124.8 a barrel, after rising to a high of $126.25 a barrel earlier on. .

The rising price of crude is "having a negative impact on consumer spending, with a spike in both crude and food, which is having a destabilizing effect on the GDP as it relates to consumer spending -- it's a wake up call," said Orlando.

The S&P's sole advancing sectors included telecommunication services, up 0.7%, and utilities, which were recently ahead 0.3%.

The Nasdaq Composite (RIXF) dropped 2.23 points, or 0.1%, to 2,448.91.

Trading places

Ahead of the opening bell, stock index futures had trimmed losses after the Commerce Department reported a sharp drop in exports as well as imports, driving the trade deficit down to $58.2 billion. .

U.S. stocks ended higher on Thursday, with better-than-expected April sales by Wal-Mart Stores Inc. (WMT) and other retailers driving a mild rebound.

Orlando, however, questioned whether investors reacted in an overly optimistic fashion to the results from the discount retailers, saying he wonders "how aggressively they needed to mark down in order to move product, so earnings may not be up to snuff."

"We'll have a better feel by the end of the month," said Orlando.

The financial sector also was hit by word from Citigroup (C) that it would sell or downside pieces of its sprawling empire. The financial giant presented the plan on its Web site.

And, the Financial Times reported Sovereign Bancorp Inc. (SOV) would raise as much as $2 billion in fresh capital from investors led by Banco Santander SA (STD).

In other financials news, Wachovia Corp. (WB) ousted Ken Thompson as chairman, though he will retain his title as chief executive.

On the commodities front, the U.S. Department of Agriculture on Friday reported its estimates on corn stocks, which are expected to drop to a 13-year low.

Elsewhere, Activision Inc. (ATVI) late Thursday reported a fourth-quarter profit as video games sales nearly doubled for the maker of the popular Guitar Hero game.

The Nikkei 225 ended 2.1% lower in Tokyo and the FTSE 100 dropped 1.2% in London.

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