Wall Street sinks as Obama warns of oversight

Reuters

Posted at Feb 26 2009 06:26 AM | Updated as of Feb 26 2009 02:26 PM

NEW YORK – Stocks fell on Wednesday after President Barack Obama warned of stricter oversight for Wall Street, raising the specter of greater regulation that investors fear could sap profits.

Obama's comments near the market close rattled investors when he said financial institutions that pose a serious risk to markets should be subject to serious government supervision.

"Whenever there is a question about how large the government role will be ... the market doesn't like that," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

"As we came close to the bell we got the curveball: our president came on TV," he said.

Trade was choppy on Wednesday, with stocks buffeted by uncertainty over Washington's plan to shore up the banking system and weak housing sales. The market had turned briefly positive after the government gave details on stress tests of banks' capital levels, with investors betting that banks would be able to withstand the news tests with relative ease, before finally falling in late trade.

The Dow Jones industrial average was down 80.05 points, or 1.09 percent, at 7,270.89. The Standard & Poor's 500 Index was down 8.24 points, or 1.07 percent, at 764.90. The Nasdaq Composite Index was down 16.40 points, or 1.14 percent, at 1,425.43.

The Dow is down 9.1 percent for the month and 17.2 percent year-to-date.

Sales of previously owned US homes plunged much more than expected in January, pulling down shares of homebuilders and big manufacturers.

The Dow Jones Home Construction index fell 2.1 percent, while United Technologies and Caterpillar Inc slid more than 3 percent.

After the closing bell, shares of Fluor Corp rose 4.3 percent after the engineering and construction company posted a quarterly profit that topped Wall Street estimates and maintained its earnings outlook for the year.

Bank of America jumped 9 percent to $5.16 and JPMorgan Chase added 3.4 percent to $21.73, but both pared earlier gains after Obama warned of greater oversight.

On Nasdaq, shares of First Solar, a maker of thin-film solar modules, plunged almost 22 percent to $107.65 after it gave a bleak short-term industry outlook.

Shares of Wynn Resorts Ltd fell nearly 16 percent to $21.75 after the casino operator reported a fourth-quarter loss as the recession hurt business and it recorded a tax expense.

Shares of insurer Lincoln National Corp. fell 14 percent after it slashed its dividend more than 95 percent. The S&P Life Insurance index fell 5.3 percent.

Trading was active on the New York Stock Exchange, with about 1.8 billion shares changing hands, above last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.43 billion shares traded, above last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by 3 to 2 while decliners beat advancers on the Nasdaq by about 7 to 3.