U.S. stocks slid last week as growing mortgage defaults heightened concern the home-loan crisis is spreading and inflation cut the odds of a Federal Reserve interest interest-rate reduction.
Financial firms and retailers dragged down the Standard & Poor's 500 Index, which erased the previous week's gain, on speculation rising foreclosures will slow home sales and restrain retail spending. Prices increased more than economists expected last month, bolstering concern the Fed won't be able to move its lending benchmark anytime soon, Bloomberg News said.
"The subprime market is certainly going to have an adverse effect on investor psychology," said Dan Genter, president of RNC Genter Capital Management in Los Angeles. "You're not going to have a Fed that comes in and saves you by lowering rates. The market doesn't look as attractive as it did last year."
The S&P 500 fell 15.90, or 1.1 percent, to 1,386.95, wiping out the previous week's recovery and slipping to its level from the week ended on March 2, when it dropped 4.4 percent, the most in four years. The Dow Jones Industrial Average sank 165.91, or 1.4 percent, to 12,110.41. The Nasdaq Composite Index declined 14.89, or 0.6 percent, to 2,372.66.
Foreclosures on loans to borrowers with the best credit ratings climbed to the highest level in almost four years, the Mortgage Bankers Association said on Tuesday, a sign of broader trouble in the housing market.
About 2.57 percent of so-called prime borrowers were at least 30 days late in their mortgage payments in the fourth quarter, the group said. Delinquencies for subprime borrowers reached 13.33 percent, also the highest since the second quarter of 2003.
Shares of Bear Stearns Cos and Lehman Brothers Holdings Inc, the largest US underwriters of mortgage-backed bonds, dropped even as they said bad home loans won't curtail earnings.
Bear Stearns fell the most since September 2001 on Tuesday following the Mortgage Bankers Association report. The stock recouped some of its losses after Bear Stearns said first-quarter profit rose eight percent as higher revenue from trading derivatives and debt of troubled companies overcame a slowing market for home loans.
