Economy fears sparks US stocks jitters

Stocks pulled back sharply and bonds jumped today as lacklustre profit reports and unease about the credit markets touched off fresh concerns about the ability of the economy to continue to push ahead.

Stocks logged their steepest declines since late August.

Mixed results from Dow Jones industrial average components 3M, Honeywell, and Caterpillar gave investors little incentive to buy. Wachovia’s weak profits renewed concerns that have dogged Wall Street in recent months about the banking sector.

In one bright spot, Google reported stronger-than-expected profits, drawing a number of analyst upgrades.

Credit concerns, which have roiled markets to varying degrees in recent months, mounted Friday afternoon after Standard & Poor’s reduced its ratings on more than 1,400 types of residential mortgage-backed securities.

Rising oil prices added to investors’ concerns. Oil moved past the psychological barrier of 90 dollars per barrel for the first time before retreating.

“We’ve got a multitude of earnings that are less than optimal in spaces outside the financials,” said Art Hogan, chief market strategist at Jefferies.

“Investors are starting to get concerned about both the pace of the US economy and the pace of earnings growth.”

In the final hour of trading, the Dow Jones industrial average fell 308.33, or 2.22%, to 13,580.63. The Dow is down for the fifth straight session.

Broader stock indicators also fell. The Standard & Poor’s 500 index fell 33.84, or 2.20%, to 1,506.24, and the Nasdaq composite index dropped 60.50, or 2.16%, to 2,738.81. The Nasdaq falling below 2,750 suggested to some that there would be further selling.

Today’s pullback pales in comparison to what traders on the floor of the New York Stock Exchange had to contend with exactly 20 years ago. On October 19 1987 - a day still known as Black Monday – the Dow plunged 23% amid concerns about interest rates and slowing economic growth.

A decline today in the New York Stock Exchange composite index proved steep enough, however, to trigger trading curbs, which put restrictions on certain types of sell orders. These protections were set up in part in response to Black Monday.

Bonds prices rose again today, extending a rally to an unusual five sessions. The yield on the benchmark 10-year Treasury note, which moves inversely to the price, fell to 4.40% from 4.50% last night. The dollar was mixed against other major currencies, while gold prices fell.

After touching 90.02 dollars overnight, light, sweet crude fell 86 cents to 88.61 dollars on the New York Mercantile Exchange. Part of oil’s run-up this week owes to continued worries over tensions between Turkey and Kurdish rebels in northern Iraq. Investors are concerned a conflict could disrupt supplies through Turkey, an important oil hub.

The rise in crude prices has also attracted investors looking for a hedge against the weakening US dollar. The greenback fell to a new low against the euro yesterday.

Hogan noted that for much of the week investors focused on results from banks, which saw profits drop on souring mortgage loans and tight credit markets. But seeing weakness today in industrial company earnings reports increased their nervousness.

“We’ve got a change in concern,” Hogan said, referring to results from industrial companies like Honeywell and Caterpillar. “That gives us a great deal of pause.”

Honeywell International, the diversified manufacturer, turned in a 14% increase in its third-quarter earnings. The company raised its forecast for full-year earnings to the high end of its previously targeted range. An analyst, however, described profit margins at the company’s transportation and automation and controls segments as disappointing. The stock declined 2.17 dollars, or 3.6%, to 58.52 dollars.

Caterpillar, one of the world’s largest construction equipment makers, fell 4.54 dollars, or 5.6%, to 73.12 dollars after its third-quarter earnings rose 21% but fell short of Wall Street’s expectations. In addition, the company lowered its full-year forecast.

Wachovia Corp. fell 1.32 dollars, or 2.7%, to 46.82 dollars after reporting third-quarter profits fell 10% due to write-downs related to difficult credit market conditions. The nation’s fourth largest bank signalled increasing credit troubles ahead and said there would be staff cuts.

Google rose 9.63 dollars to 649.25 dollars after the search engine leader said advertising spending lifted third-quarter profit by 46%.