Stocks decline as AIG reveals need for cash, oil surges
NEW YORK -- Wall Street retreated Friday as investors contended with wider-than-expected losses at insurer American International Group Inc. and another worrisome spike in oil prices. The Dow Jones industrial average at times gave up nearly 150 points.
AIG's loss for the first quarter rekindled investors' anxiety about the strained state of the global financial system. AIG posted a loss of $7.81 billion -- its second straight quarterly loss -- and revealed plans to raise $12.5 billion in the coming months. The world's largest insurer, like many of its peers in the financial services sector, has seen its investments in the credit markets plunge in value.
Meanwhile, crude oil prices extended their trek into uncharted territory, further stoking Wall Street's concerns about inflation. Oil futures rose above $126 a barrel for the first time before giving back some of the advance. Light, sweet crude recently rose $1.86 to $125.54 on the New York Mercantile Exchange.
"I think what we're seeing so far is a reaction principally to the AIG news," said Phil Orlando, chief equity market strategist at Federated Investors. "That news came as something of a surprise to some and a wake-up call to most that the financial-service companies are not yet out of the woods."
Orlando noted that the market has pulled back this week after a sizable rebound in the last two months and that some investors might be eager to lock in profits while Wall Street irons out some concerns about the financial sector.
"Our view has been that the market, generally speaking, is in pretty good shape with the exception of the financial service companies and the consumer dictionary companies," he said, noting that the news from AIG is an important reminder of the troubles remaining among financials.
In early afternoon trading, the Dow fell 147.53, or 1.15 percent, to 12,719.25.
Broader stock indicators were also lower a day after the stock market notched a modest advance. The Standard & Poor's 500 index fell 12.79, or 0.92 percent, to 1,384.89, and the Nasdaq composite index fell 13.15, or 0.54 percent, to 2,438.09.
Bond prices rose as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.76 percent from 3.78 percent late Thursday.
Gold prices advanced, while the dollar traded mixed against other major global currencies.
The economic figures arriving Friday underscored the slowdown in the U.S. economy. The Commerce Department said the U.S. trade deficit narrowed in March as demand for imports registered the biggest decline since the last recession was ending. The deficit stood at $58.2 billion, a decrease of 5.6 percent from February. The 2.9 percent drop in demand for imports was the steepest monthly decline since December 2001 -- a month after the last recession ended.
In corporate news, AIG fell $3.82, or 8.7 percent, to $40.33 after reporting its loss. The stock was by far the steepest decliner among the 30 that comprise the Dow industrials.
Citigroup Inc. said it hopes to shed about $500 billion in assets and increase revenue by 9 percent over the next few years as it tries to recover from big losses tied to deterioration in the mortgage and credit markets. Citi, one of the Dow 30 stocks, slipped 34 cents to $23.96.
General Motors Corp., also a Dow component, said in a regulatory filing it would provide financial support to help settle the 10-week strike at auto parts supplier American Axle and Manufacturing Holdings Inc. GM fell 89 cents, or 4.2 percent, to $20.26.
Investors' caution Friday precedes what will likely be a busy week of economic news now that the flow of quarterly earnings reports is beginning to ebb.
"Next week I think will be a fairly important economic week," Orlando said, pointing to expected reports on retail sales, retail inventories, industrial production and regional manufacturing.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 618.6 million shares.
The Russell 2000 index of smaller companies fell 2.36, or 0.33 percent, to 717.19.
Overseas, Japan's stock market fell 2.06 percent. Britain's FTSE index fell 1.05 percent, Germany's DAX index fell 0.97 percent, and France's CAC-40 fell 1.88 percent.