U.S. Stocks Decline, Poised for Worst Fourth Quarter Since 2000

Dec. 29 -- U.S. stocks fell and were poised for their first fourth-quarter decline since 2000 after government reports on durable goods and unemployment reinforced speculation the housing-market collapse will push the economy into recession.

Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. dropped after Goldman Sachs Group Inc. analyst William Tanona predicted the firms may write down an additional $34 billion of assets linked to subprime mortgages. KB Home and Macy's Inc. led builders and retailers lower after falling home prices and sales heightened concern that sinking property values will slow consumer spending.

Lower-than-forecast orders for durable goods in November and an unexpected rise in jobless claims last week added to evidence that the housing slump is spreading to the broader economy. The Standard & Poor's 500 Index has declined 3.2 percent since the end of September, paring its 2007 advance to 4.2 percent.

``It's a struggle right now,'' said Edward Hemmelgarn, who oversees about $350 million as president of Shaker Investments Inc. in Cleveland. ``If you look at the economic news, most of it is more negative.''

The S&P 500 dropped 0.4 percent to 1,478.49 this week. The Dow Jones Industrial Average slipped 0.6 percent to 13,365.87. The Nasdaq Composite Index lost 0.7 percent to 2,674.46.

The declines left the S&P 500 5.5 percent below its all-time closing high of 1,565.15 on Oct. 9. The index has rebounded 5.1 percent in a month as traders boosted bets the Federal Reserve will reduce interest rates next year to stoke the economy.

Cars, Aircraft

The Commerce Department said two days ago that orders for cars, aircraft and other items made to last several years increased 0.1 percent last month, less than the 2 percent median economist estimate in a Bloomberg survey. The number of Americans filing first-time claims for unemployment insurance increased by 1,000 to 349,000, the Labor Department reported. Economists forecast initial claims would fall to 340,000.

Citigroup, the biggest U.S. bank by assets, dropped 3.1 percent to a five-year low of $29.29. JPMorgan, the third-biggest lender, declined 1.9 percent to $43.26. Merrill, the world's largest brokerage, lost 4.6 percent to $52.97.

Citigroup may reduce the value of its holdings by $18.7 billion in the fourth quarter and cut its dividend 40 percent to preserve capital, Goldman's Tanona said in a Dec. 26 report. JPMorgan may write off $3.4 billion, while Merrill may reduce its holdings by $11.5 billion, the analyst wrote.

Homebuilders Drop

Losses and writedowns at the world's biggest banks and securities firms total $97 billion this year, according to data compiled by Bloomberg. Financial shares in the S&P 500 dropped 1.4 percent this week, bringing their 2007 decline to 21 percent. That's the biggest annual plunge since 24 percent in 1990.

KB Home, the fifth-biggest U.S. homebuilder by sales, lost 7.8 percent to $21.08. Home prices in 20 U.S. metropolitan areas fell 6.1 percent in October, the most in at least six years, according to the S&P/Case-Shiller home-price index. Sales of new homes in the U.S. fell 9 percent, more than estimated, to a 12- year low in November, the Commerce Department said.

Home prices may keep falling as record foreclosures put even more properties on the market while stricter lending rules make it more difficult to get financing. Declining values pose a risk to consumer spending by making it harder for owners to tap home equity for extra cash.

Macy's, owner of the namesake chain and Bloomingdale's, lost 4 percent to $25.48. The company said yesterday it is closing nine stores with inadequate sales and eliminating 899 jobs.

Look Ahead

Reports next week on job growth, existing home sales and manufacturing will give investors further clues on the outlook for growth and borrowing costs. Odds that the central bank will cut its benchmark lending rate by a quarter-point increased to 90 percent from 80 percent a week ago, based on Fed funds futures.

Employers in the U.S. probably added 70,000 jobs in December, while the unemployment rate increased to 4.8 percent, according to the median economist forecasts in a Bloomberg survey. Manufacturing this month probably grew at the slowest pace since January, while sales of previously owned homes in November held steady after eight months of declines, economists said.

``We're approaching coin-toss status on whether we go into a recession or not,'' said Michael Mullaney, who helps oversee $10 billion at Fiduciary Trust Co. in Boston. ``We have some reservations about the strength of the market.''

Treasury yields fell for a second straight week. The benchmark 10-year note's yield dropped 0.10 percentage point to 4.07 percent.