INO.com News - Stocks Close Sharply Lower On Financial Crisis In Dubai

Stocks Close Sharply Lower On Financial Crisis In Dubai - U.S. Commentary

(RTTNews) - With traders expressing concerns about a financial crisis in Dubai, stocks saw significant weakness during trading on Friday. The major averages all ended the day firmly in negative territory, although well off their worst levels of the day.

Stocks moved sharply lower at the open as traders reacted to news that Dubai World, the main investment arm of Dubai, has requested to postpone payment on nearly $60 billion in debt. The news raised concerns about the potential impact of a default by the company.

The news contributed to substantial weakness in the Asia-Pacific markets that carried over into the U.S. markets. Light volume on Wall Street amid a holiday-shortened session may have helped to exaggerate the extent of the downward move.

Peter Boockvar, equity strategist for Miller Tabak, said, "The Dubai request for a standstill agreement as a precursor for a hoped for debt restructuring is not a complete surprise considering the weekly newspaper articles on their $80b+ debt overhang."

"What is the surprise is the lack of any immediate support from Abu Dhabi (maybe not willing to support another bailout), the uncertainty of what exposure foreign banks have if any and where may other debt laden bodies lie, corporate and/or sovereign," he added.

Among individual stocks, financial services giant ING (ING) showed a notable decline after the company priced its 7.5 billion euro rights issue at a nearly 40 percent discount. ING said it would issue 1.77 billion shares at 4.24 euros each.

Selling pressure waned not long after the open, however, and the major averages staged a notable recovery attempt over the course of the morning.

While the major averages moved well off their lows for the session, they still ended the day sharply lower. The Dow closed down 154.48 points or 1.5 percent at 10,309.92, the Nasdaq fell 37.61 points or 1.7 percent to 2,138.44 and the S&P 500 closed down 19.14 points or 1.7 percent at 1,091.49.

For the holiday-shortened week, the Dow and the Nasdaq posted modest losses, while the S&P 500 was nearly unchanged. The Dow fell 0.1 percent for the week, while the Nasdaq lost 0.4 percent.

Sector News

Resource stocks turned in some of the market's worst performances, as the news out of Dubai contributed to a steep drop in commodities prices.

With the price of gold pulling back well off the record closing high set on Wednesday, gold stocks posted particularly steep losses. The NYSE Arca Gold Bugs Index closed down 4.2 percent after ending the previous session at its best closing level in over a year.

Significant weakness was also visible among housing stocks, as reflected by the 2.5 percent loss posted by the Philadelphia Housing Sector Index. Pulte Homes (PHM) posted a notable loss, ending the session down 3.2 percent at a nearly one-month closing low.

Most of the other major sectors also showed substantial moves to the downside, reflecting broad based selling pressure. Commercial real estate, electronic storage, banking, and networking stocks were among the worst performers on the day.

Dow Components

All thirty of the Dow components ended the session in nearly territory, contributing to the triple-digit loss posted by the blue chip index.

Caterpillar (CAT) turned in one of the Dow's worst performances, with the construction equipment maker closing down 2.7 percent. Despite the loss, the stock remained stuck in a recent trading range.

Dow components Bank of America (BAC), Alcoa (AA), and Exxon Mobil (XOM) also posted notable losses on the day. Shares of Exxon Mobil closed down 2.1 percent after ending the previous session at a nine-month closing high.

While AT&T (T), McDonald's (MCD), and Kraft (KFT) posted more modest losses, they still ended the day red along with the other Dow components.

Other Markets

In overseas trading, stocks markets across the Asia-Pacific region ended sharply lower on Friday on concerns about the financial crisis in Dubai. Japan's benchmark Nikkei 225 Index fell 3.2 percent, while Hong Kong's Hang Seng Index plunged 4.8 percent.

Meanwhile, the major European markets showed a substantial turnaround after moving sharply lower at the open. The U.K.'s FTSE 100 Index rose 1 percent, while the French CAC 40 Index and the German DAX Index closed up 1.2 percent and 1.3 percent, respectively.

In the bond markets, treasuries saw considerable strength, as traders moved their money into the safety of government-backed bonds.

Looking Ahead

Next week, trading is likely to be impacted by the release of another batch of economic data, particularly the monthly employment report due to be released on Friday. Reports on construction spending and manufacturing and service sector activity are also likely to be in focus.

Along with the economic data, traders are also likely to keep an eye on President Barack Obama's announcement on troop levels in Afghanistan as well as Federal Reserve Chairman Ben Bernanke's confirmation hearings.

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