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Wall Street dips on Bernanke warning

By Anuj Gangahar in New York

Published: June 3 2009 14:18 | Last updated: June 3 2009 21:35

Wall Street stocks declined on Wednesday as oil prices slid and investors reacted to mixed data on the economy and a warning from Federal Reserve chairman Ben Bernanke.

Testifying before the House Budget Committee, Mr Bernanke said the US budget deficit threatened US financial stability and said the government could not continue indefinitely to borrow at the current rate to finance the shortfall.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth. Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance,” he said.

By the close in New York, the S&P 500 index was down 1.4 per cent at 931.79, above its lows for the day, while the Nasdaq Composite was 0.6 per cent lower at 1,825.92. The Dow Jones Industrial Average was 0.7 per cent lower at 8,676.20.

Investors also reacted to several pieces of economic data. The Institute for Supply Management’s non-manufacturing index edged up to 44 in May from 43.7 in April.

Commerce Department data showed that an increase in demand for cars, electrical equipment and construction machinery helped boost US factory orders, which rose for the second time in three months.

A report from payroll manager ADP showed a 532,000 drop in private sector jobs in the US in May. The figure was less than the 550,000 consensus among economists.

The US Labor Department’s monthly report on employment is due on Friday.

In corporate news, shares in insurer Aetna fell 4.7 per cent to $26 after it reduced its 2009 earnings forecast.

Valero Energy, the largest US oil refiner, slumped 17.8 per cent after it said it expected to post a second- quarter loss and that it would sell stock. Shares in other oil companies fell as crude prices declined for a second day.

Light, sweet crude for July delivery was down $1.95, or 2.8 per cent at $66.60 a barrel on the New York Mercantile Exchange.

Halliburton shares fell 4.6 per cent to $22.57, Sunoco was 7.5 per cent lower at $28.03 and Marathon Oil fell 7.2 per cent to $30.99. The S&P energy index was down 3.3 per cent.

Toll Brothers fell 6.6 per cent to $18.24 after the homebuilder reported a narrower-than-expected loss on writedowns. Its losses saw the S&P homebuilders index fall 5 per cent to 214.81.

Dish Network gave up 9.7 per cent to $15.56 after the second-largest US satellite-television provider and EchoStar were told to pay TiVo $192.7m in damages and interest because their software infringes TiVo’s patent, a US judge said. TiVo shares surged 53 per cent to $10.70.

A federal court agreed late on Tuesday to hear a challenge by pension funds opposing the sale of Chrysler’s assets to Fiat.

Arguments in the appeal will be held on Friday and could delay Chrysler’s emergence from bankruptcy.

The Senate Commerce Committee is due to hold a hearing on the bankruptcies of Chrysler and General Motors on Thursday. GM will be dropped from the Dow Jones Industrial Average next week to be replaced by Cisco Systems. Cisco shares were down 1.3 per cent at $19.36.

The financial sector remained in focus as stock market investors continued to respond to the latest round of equity capital raisings.

The S&P financial index fell 1.5 per cent to 160.88. Shares in Citigroup, which will also be dropped from the Dow next week, to be replaced by Travelers, fell 3.4 per cent to $3.39. Travelers shares were 0.7 per cent lower at $42.70.

Goldman Sachs was off 0.7 per cent at $142.15, Bank of Americafell 1.7 per cent to $11.21, while JPMorgan dropped 1.5 per cent to $33.98.

Wednesday’s losses came after US stocks posted slight gains on Tuesday as investors digested the latest data on the housing market and a fresh round of bank capital raisings.

Those gains took the S&P 500 and Nasdaq Composite indices to their closing highs for the year.

Copyright The Financial Times Limited 2009

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