U.S. Stocks Drop on Credit Concern; Banks, Weyerhaeuser Fall

Feb. 8 (Bloomberg) -- U.S. stocks retreated, sending the market to its first weekly decline since mid-January, as concern that corporate defaults will increase outweighed gains in technology companies and commodities producers.

Bank of America Corp. and JPMorgan Chase & Co. led banks and brokerages to their steepest weekly drop in six years as indexes of corporate credit risk climbed to records. Weyerhaeuser Co., the largest U.S. lumber producer, fell to a 16-month low in New York after posting a loss. Declines were limited as Amazon.com Inc., Microsoft Corp. and Apple Inc. rose and higher oil and metals prices boosted energy and mining companies.

The Standard & Poor's 500 Index lost 5.62 points, or 0.4 percent, to 1,331.29. The Dow Jones Industrial Average fell 64.87, or 0.5 percent, to 12,182.13. The Nasdaq Composite Index increased 11.82, or 0.5 percent, to 2,304.85. Almost two stocks dropped for every one that rose on the New York Stock Exchange.

``There's going to be more writedowns, more problems,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at the Hartford in Hartford, Connecticut, during an interview with Bloomberg Television. ``It's hard to navigate a market like this.''

The S&P 500 snapped two straight weeks of gains after a report on Feb. 5 showed service industries contracted at the fastest pace since 2001. The index has lost 15 percent since its Oct. 9 record, while the Dow has fallen 14 percent from its all- time high the same day. The Nasdaq has slumped 19 percent since an almost-seven year peak on Oct. 31.

Credit Concern

JPMorgan lost $1.29, or 2.9 percent, to $43.82. Bank of America retreated $1.21, or 2.8 percent, to $42.16. An index of banks and brokerages in the S&P 500 fell 8.9 percent this week, its biggest weekly loss since September 2001.

The costs of insuring various forms of corporate debt against default using derivatives rose to records. Contracts on the benchmark Markit CDX North America Investment Grade Index jumped 5.5 basis points to 129.5 at 12:15 p.m. in New York, the highest since the index started in 2004, according to Deutsche Bank AG.

The Markit LCDX Series 9 index of leveraged buyout loan derivatives traded at 91.8, according to broker Phoenix Partners Group, matching the lowest since the latest series began trading in October. Banks sitting on $160 billion of unsold leveraged loans may have to write down more losses after a plunge in the value of the debt, according to Bank of America Corp. analysts.

`Crunch Is Intensifying'

``It tells you the credit crunch is intensifying,'' said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. ``A lot of this paper is sitting on bank balance sheets. There's further potential for more writedowns, and that constricts the supply of credit in other areas.''

The world's largest banks and brokerage firms have written down the value of debt and related products on their books by $146 billion since the beginning of 2007, according to data compiled by Bloomberg. The charges stem from the collapse of the U.S. subprime mortgage market.

A U.S. recession is now an even bet as job losses and the housing contraction jeopardize the longest-ever expansion in consumer spending, according to a Bloomberg News survey. The world's largest economy will expand at a 0.5 percent annual rate during the first quarter, capping the weakest six months since the last economic slump in 2001, according to the median estimate of 62 economists polled from Jan. 30 to Feb. 7.

Weyerhaeuser, a supplier to homebuilders, fell $2.37, or 3.7 percent, to $62.34 after reporting a fourth-quarter loss of $63 million amid the worst housing slump in a quarter century.

Insurers led an index of health-care companies in the S&P 500 to the third-biggest drop among 10 industries. The chairman of the Senate Finance Committee threatened yesterday to have Congress impose marketing rules on privately run health plans sponsored by Medicare, the U.S. program for the elderly and disabled. The chairman, Democrat Max Baucus of Montana, cited ``abusive'' sales tactics.