Stocks end lower as Madoff victim list grows

NEW YORK -- Investors sent stocks lower Monday as anxiety over the growing list of firms affected by investment manager Bernard Madoff magnified Wall Street's concerns about the health of the financial sector.

Stocks had traded mixed early on as investors were relieved to hear that President George W. Bush was working on providing short-term government help for the auto industry. The Senate's rejection of a $14 billion bailout for automakers last week had raised the possibility of a major bankruptcy, which some analysts say would result in as many as 3 million U.S. job losses next year.

But as that fear eased somewhat, it gave way to concerns about companies' exposure to Madoff's fund. Well respected in the investment community after serving as chairman of the Nasdaq Stock Market, Madoff was arrested Thursday for orchestrating what prosecutors say was a $50 billion Ponzi scheme to defraud investors.

Firms with exposure include HSBC Holdings PLC, Banco Santander, BNP Paribas, Royal Bank of Scotland Group PLC and hedge fund Man Group PLC. And the list of prominent investors keeps growing.

"This is a massive fraud taking down very intelligent people, very sophisticated investors and it just leaves you a little bit shaky in terms of who's really monitoring the store," said Jay Wong, principal and portfolio manager of Los Angeles-based money manager Payden & Rygel.

The ordeal dealt another blow to investors' confidence in the market, analysts said.

"The investor psyche is already quite fragile. Scandals like this just add fuel to the fire," said Alan Gayle, senior investment strategist for RidgeWorth Capital Management.

Investors also were nervous ahead of earnings reports later this week from the country's two largest investment banks, Goldman Sachs Group Inc. and Morgan Stanley.

Analysts are expecting Goldman Sachs to report a loss of $3.50 per share on Tuesday, according to a poll by Thomson Reuters. It would be the investment bank's first quarterly loss since it went public in 1999. Morgan Stanley reports results on Wednesday.

According to preliminary calculations, the Dow Jones industrial average fell 65.15, or 0.75 percent, to 8,564.53. The Standard & Poor's 500 index lost 11.16, or 1.27 percent, to 868.57, while the Nasdaq composite index fell 32.38, or 2.10 percent, to 1,508.34.

The Russell 2000 index of smaller companies fell 17.63, or 3.76 percent, to 450.80.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to a light 1.21 billion shares.

Volume is expected to remain light this week, the last full week of trading this year, ahead of the holidays. Analysts were quick to point out that light volume often skews the market's moves.

"There doesn't seem to be a whole lot of activity in the market right now," said Joe Keetle, senior wealth manager of Dawson Wealth Management. "On small volume, the market can move dramatically one way or the other."

Investors also seemed hesitant to make any major moves ahead of the Federal Reserve's decision Tuesday on interest rates. Some analysts anticipate policy makers will cut the key rate by a half-point to 0.5 percent, while others expect a three-quarter-point reduction to 0.25 percent 창€” which would be the lowest key rate on records going back to 1954.

"A Fed ease this week has long been anticipated by the market; the only news would be if the Fed did not cut," Gayle said. He added that the market will probably pay close attention to the statement the central bank releases about the economy and the possibility of future policy actions.

Despite Monday's moderate decline, investors have been showing a greater tolerance for bad economic and corporate news in recent sessions, leading some analysts to believe that the market may be showing some stability after the horrific selling of the past three months.

The Dow ended last week down 0.07 percent; the S&P 500 index finished the week up 0.42 percent; and the Nasdaq composite index ended the week up 2.08 percent. Still, the Dow is down about 35 percent for the year, while the S&P 500 and Nasdaq are down more than 40 percent.

"The market has recently done a very good job with absorbing bad news," said Quincy Krosby, chief investment strategist at The Hartford Financial Services Group Inc. "The key is no major surprises for the market."

In addition to a rate cut, investors are anticipating some sort of resolution for the auto industry this week.

Following the legislative defeat on Thursday, the administration said it was considering several options. Bush reiterated Monday that he remains open to tapping the $700 billion financial bailout fund to help the companies.

General Motors Corp. and Chrysler LLC are seeking the funding, while Ford Motor Co. has said it has enough cash to survive 2009.

GM was the biggest gainer among the 30 stocks that make up the Dow, rising 14 cents, or 3.6 percent, to close at $4.08. The biggest loser Monday was JPMorgan Chase & Co., which fell $2.31, or 7.5 percent, to $28.63, alongside other declining financial stocks.

The Madoff scandal only added to investors' growing fears about the financial sector 창€” namely that banks will report more losses in the fourth quarter due to the major market turmoil throughout the period.

Goldman Sachs fell $1.28 to $66.46, while Morgan Stanley lost 21 cents to $13.64.

In economic data, the Fed reported a decline in November industrial production, while the New York Fed reported a massive contraction in regional manufacturing activity.

Bond prices edged higher Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.50 percent late Monday from 2.58 percent late Friday. The yield on the three-month T-bill 창€” a safe short-term asset that's in very high demand 창€” dipped to 0.02 percent late Monday from 0.04 percent late Friday.

The dollar fell against the euro and the British pound, but rose against the Japanese yen. Gold prices rose.

Light, sweet crude for January delivery peaked briefly above $50 early Monday, but then fell $1.77 from Friday's level to settle at $44.51 a barrel on the New York Mercantile Exchange.

Markets overseas were mixed. Japan's Nikkei stock average rose 5.21 percent, while Hong Kong's Hang Seng index rose 1.96 percent. Britain's FTSE 100 slipped 0.07 percent, Germany's DAX index fell 0.18 percent, and France's CAC-40 fell 0.87 percent.