Wall Streets ends down

Wall Street stumbled today after a key survey showed manufacturing unexpectedly contracted in November for the first time in more than three years, stoking concerns that the US economy will not be able to achieve a soft landing.

Stocks and the dollar were pounded after the Institute for Supply Management said its index on manufacturing fell to 49.5 from 51.2 in October. Economists had been expecting 51.5. Anything under 50 indicates the manufacturing sector is contracting.

The report, based on a survey of corporate purchasing managers, was seen by some on Wall Street as possibly indicating that the Federal Reserve might have overshot the mark in more than two years of interest rate hikes that ended in June.

Wall Street had been expecting the Fed to hold interest rates steady at its December 12 meeting, and now there is a growing belief the central bank may soon cut rates because of economic weakness.

“This is just additional confirmation that the economy is not only slowing but quite possibly going into a recession,” said Hugh Moore, a partner with investment firm Guerite Advisors. “It’s not just the housing and auto industry any longer, now we’re finding out that manufacturing in general is slowing.”

Moore said an ISM number below 50 has preceded every US recession since the 1960s.

The Dow Jones industrial average fell 27.80, or 0.23%, to 12,194.13.

Broader stock indicators also declined. The Standard & Poor’s 500 index dropped 3.91, or 0.28%, to 1,396.72, and the Nasdaq composite index fell 18.56, or 0.76%, to 2,413.21.

Leading the Big Board lower in volatile trading were shares of manufacturers like 3M, Caterpillar and US Steel Corp.

The drop does not bode well as Wall Street hopes to finish the final month of the year with double-digit growth. The Dow is up 13.78% so far this year, while the S&P 500 has gained 11.89% and the Nasdaq is up 9.43%.

The ISM news had a big effect on other markets. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to an 11-month low of 4.43% from 4.46% on Thursday.

The dollar continued its slide against major currencies, except the yen. Also hitting the dollar was a Commerce Department report that US construction spending took its biggest tumble in five years during October.

Today’s news put attention on speeches by Chicago Fed President Michael Moskow, Richmond Fed President Jeffrey Lacker, and Fed Vice Chairman Donald Kohn, though the comments ultimately seemed to have little effect.

Fed Chairman Ben Bernanke made no comment on the economic outlook during a speech Friday morning, although on Tuesday he said risks from inflation could further complicate an economy suffering from a general slowdown.

Moskow said inflation is moving in the right direction but that further interest rate hikes could be necessary. Lacker’s speech did not include comments on economic forecasts, according to prepared remarks.

The weak manufacturing snapshot comes after a report yesterday from Chicago-area corporate purchasing managers that indicated business activity in the Midwest slowed faster than anticipated. It also follows a bigger than expected drop in home sales for October.

Manufacturers were among the biggest decliners, touching sectors from chip makers to steel companies. Heavy equipment maker Caterpillar fell 84 cents to 61.19. Intel declined 47 cents, or 2.2%, to 20.93. US Steel fell 1.79, or 2.4%, to 73. 3M fell 1.48 to 79.98.

Vehicle manufacturers were also in focus as they reported November car and truck sales. Ford fell 9 cents to 8.04 after it reported US sales slipped 9.6%, while DaimlerChrysler AG dropped 29 cents to 57.99 after posting a 4.7% rise. Toyota’s monthly sales surpassed Ford’s – the No 2 US car manufacturer – for only the second time yet.

General Motors rose 46 cents to 29.69 in heavy volume after a report that financier Kirk Kerkorian dumped his stake in the world’s largest vehicle manufacturer for more than 800 million. He had about 28 million shares left, which were sold off on Thursday, according to The Wall Street Journal.

Investors seemed little moved by the company’s November auto sales report, which showed an increase of 5.8%.

Home Depot shares surged 1, or 2.6%, to 38.98 on speculation the home improvement chain might be an acquisition target by several private equity firms.

H&R Block declined after reporting a wider-than-expected loss during the second quarter as its mortgage lending arm continues to lose money. H&R Block fell 25 cents to 23.75.

Warner Music Group fell 62 cents to 24.80 after the record company reported third-quarter results that fell short of Wall Street projections.

The Russell 2000 index of smaller companies fell 4.96, or 0.63%, to 781.17.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume totalled 1.71 billion shares, compared with 1.97 billion traded at the same point on Thursday.