Wall Street falls on continuing credit market worries

US stocks tumbled today as the ailing credit market and a spike in home foreclosures intensified the market’s worries about a sagging economy. The Dow Jones industrials gave up 214 points.

Concerns about credit grew after Thornburg Mortgage Inc and a Carlyle Group bond fund revealed troubles with investments backed by mortgages. The entities failed to make margin calls, which are payments to guarantee much larger debt or investments.

And the genesis of the credit concerns which erupted last year – souring mortgage loans – dealt investors another blow after the Mortgage Bankers Association reported that home foreclosures rose to record levels in the fourth quarter. Worries about defaults have made lenders hesitant to extend credit, preventing the credit markets from functioning normally.

Wall Street’s sense that credit troubles are seeping further into areas of the financial sector once deemed safe weighed on financial stocks and the broader market.

“I think these are near-term, unfortunate events that if they had the luxury of time and capital they could probably weather but unfortunately, with this leverage-based system we have, time is a very expensive luxury,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, in reference to the difficulties at Thornburg and Carlyle.

The Dow fell 214.60, or 1.75%, to 12,040.39 – almost slipping below the 12,000 level, which it briefly did in January for the first time since November 2006.

Broader indexes also retreated. The Standard & Poor’s 500 index fell 29.36, or 2.20%, to 1,304.34, and the Nasdaq composite declined 52.31, or 2.30%, to 2,220.50.

The Russell 2000 index of smaller companies fell 20.96, or 3.07%, to 662.78.

Bond prices jumped as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.58% from 3.69 percent late on Wednesday.

“It’s an ugly day in a chain of ugly days,” said JPMorgan equities analyst Thomas J Lee. The Dow managed a moderate gain after a volatile session yesterday, and had fallen in the four previous sessions.

The stock market’s future performance will rely largely on tomorrow’s employment report. Economists on average are predicting a modest gain in February payrolls, but some anticipate a decline.

According to Mr Lee, a bad jobs number could send the stock market lower by confirming investors’ fears of a recession, while a good jobs number will probably be met with some scepticism.

Investors are also fretting as they watch the dollar scrape new lows against the euro. The greenback’s weakness is a big culprit behind a recent string of new highs for oil prices.

Light, sweet crude rose to a fresh record today after an unexpected decline in US crude supplies and a widely anticipated decision by Opec not to increase production. Oil shot up 95 cents to settle at a record 105.47 dollars per barrel.

Gold – regarded as a defensive investment – slipped today, but remains only about 20 dollars away from the psychological benchmark of 1,000 dollars an ounce.

Bad news about the housing market further dented sentiment. The Mortgage Bankers Association said the proportion of all mortgages nationwide which fell into foreclosure jumped to a record 0.83% in the final quarter of 2007. The group also warned that foreclosures are likely to continue to rise as the number of homeowners behind on their mortgage payments has jumped to its highest level since 1985.

The Federal Reserve added more unwelcome housing news in reporting that Americans’ debt on their homes exceeds their equity for the first time since the central bank began tracking the figures in 1945. Homeowners’ percentage of equity fell to 47.9% in the fourth quarter.

Wall Street is worried that Americans distressed about their home values or struggling with mortgage payments will pare their spending.

Investors appeared to take an upbeat report from Wal-Mart Stores Inc as a mixed signal. While Wal-Mart reported stronger-than-expected sales for February, some investors are worried that success at the world’s largest retailer reflects increased bargain-hunting by consumers.

Reports from retailers such as JC Penney Co and Limited Brands Inc, the parent of the Victoria’s Secret and Bath & Body Works chains, indicated consumers are paring some spending that they do not regard as essential.

Wal-Mart was the only stock among the 30 that comprise the Dow industrials to advance. The shares rose 43 cents to 49.98 dollars.

JC Penney fell 5.34 dollars, or 11.10%, to 42.77 dollars, while Limited declined 54 cents, or 3.5%, to 14.82 dollars.

A retrenchment among consumers is an alarming prospect for Wall Street as consumer spending accounts for more than two-thirds of US economic activity.

Investors’ fear of becoming ensnared in widening credit troubles weighed on the financial sector.

Thornburg plunged 1.75 dollars, or 51%, to 1.65 dollars. Amsterdam-listed Carlyle Capital Corp Ltd, a bond fund managed by private equity firm Carlyle Group, fell more than 50% after saying it received a note of default for missed margin calls.

Other financial stocks retreated. Citigroup Inc fell to a new nine-year low before closing down 98 cents, or 4.4%, to 21.17 dollars. Merrill Lynch & Co declined 3.46 dollars, or 7%, to 45.86 dollars, while Washington Mutual Inc fell 1.04 dollars, or 8.1%, to 11.76 dollars.

Declining issues outnumbered advancers by nearly 9 to 1 on the New York Stock Exchange, where volume came to 1.62 billion shares.