UPDATE: US Stocks Close Sharply Lower; DJIA Ends Month Flat

By Donna Kardos Yesalavich
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--U.S. stocks tumbled Friday, with Bank of America, JPMorgan Chase and Alcoa leading the Dow Jones Industrial Average's components lower as investors again grew concerned about the economy after the short-lived excitement over Thursday's good report on gross domestic product.

The Dow Friday posted its biggest one-day point drop since April 20, and ended October just 0.45 point above where it began. Other major measures, including the Standard & Poor's 500 and the Nasdaq Composite, ended the month in the red, marking their first monthly declines since February.

The Dow closed down 249.85 points, or 2.51%, at 9712.73, marking its 10th triple-digit movement this month. Five of them were down and five up, reflecting how volatile the market has gotten as investors try to get a handle on whether the 48% surge in the Dow since March can be justified by economic fundamentals. For the week, the Dow fell 259.45 points, or 2.6%, marking its second consecutive week in the red.



Among the Dow's big movers Friday, Bank of America tumbled 1.15, or 7.3%, to 14.58, while JPMorgan slid 2.58, or 5.8%, to 41.77, and Alcoa dropped 58 cents, or 4.5%, to 12.42.

Across other measures, the Nasdaq Composite fell 52.44, or 2.50%, to 2045.11. It was down 5.08% for the week, and 3.65% for the month.

The Standard & Poor's 500 dropped 29.93, or 2.81%, to 1036.18. For the week, it dropped 4.02%; it was down 1.98% for the month.

Friday's declines come as the latest measure of consumer spending came in weak, reflecting the biggest drop since December 2008, although it was in line with economists' expectations.

Still, investors are growing hungry for economic data to start showing improvement and strength, rather than simply being above or in line with expectations. In addition, they are starting to wonder how much of the economic growth that was reported Thursday would have been there if it weren't for all the government support through such programs as the "cash for clunkers" funding for automobile purchases.

Nonetheless, some market participants said Friday's decline was typical of a market in recovery, and therefore no major cause for concern.

"It's not unprecedented after having such a strong rally," said Mary Ann Bartels, head of U.S. technical and market analysis at Bank of America Merrill Lynch. "Markets need to consolidate in order to achieve new recovery highs, and a correction will broaden out the base-building process we've been in since last year," giving stocks more support for a move higher, she said.

Life insurers fell in an exaggeration of the declines across the market, as the sector is exposed to equities through its variable-annuity guarantees and other equity-linked retirement-income products. MetLife was among the decliners, slumping 2.81, or 7.6%, to 34.03, after it swung to a third-quarter loss on $1.4 billion in investment losses. The life insurer's stock had climbed 7.8% Wednesday ahead of the report.

McAfee declined 1.87, or 4.3%, to 41.88, after the security-software company said its third-quarter profit fell 25% as higher costs led to lower margins.

Stereo maker Harman International Industries was a bright spot, surging 4.61, or 14%, to 37.61, after the company reported fiscal first-quarter sales above Street expectations. The company said its markets are stabilizing and it is gaining market share.

Estee Lauder also rose, climbing 1.36, or 3.3%, to 42.50, after its fiscal first-quarter profit more than doubled as the beauty-products company posted higher earnings across all of its businesses. Goldman Sachs raised its investment rating on the stock to neutral from conviction sell.

ITT fell 3.66, or 6.7%, to 50.70, after the defense and industrial conglomerate reported a 73% drop in third-quarter profit, stemming from a $131 million charge for asbestos-liability claims.

Cummins was down 2.86, or 6.2%, to 43.06, after the engine maker reported its third-quarter earnings fell 59% from last year's record results as it struggles in the face of weak North American and European trucking and construction markets.

Beckman Coulter fell 2.73, or 4.1%, to 64.33. The maker of biomedical instrument systems and test equipment posted a 94% plunge in third-quarter earnings as restructuring and acquisition costs masked higher sales and margins.

Universal Health Services' latest quarterly earnings beat analysts' expectations, but its shares fell 5.07, or 8.4%, to 55.65, as investors focused on the hospital operator's growing bad debt, which climbed more than analysts had been expecting. The news weighed on Tenet Healthcare, which fell 37 cents, or 6.7%, to 5.12.

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Banks broken up: Q&A

Three new banks are to appear on Britain's high streets as part of a major break-up of the sector to be announced by the Government this week, The Sunday Telegraph has learned.
Why is the government doing it?

Gordon Brown and Alistair Darling have little choice. Under European law, Royal Bank of Scotland (RBS), Lloyds Banking Group and Northern Rock have to pay a price for the billions of pounds of state aid they have received. However, there are likely to be smiles rather than frowns in Downing Street because gradually returning these troubled institutions to full private ownership is firmly on the to do list. The government’s stakes in RBS and Lloyds are also threatening to become an even bigger political headache should these banks shower their best performing staff with bonuses in the New Year. Expect to see the emergence of Williams and Glyn, the revival of TSB and the resuscitation of Northern Rock hailed by the Prime Minister as a return to an era of more sensible and conservative banking.
Who will own these new banks?



We know who the Government do not want to own the new High Street banks but less about who could be favoured. Hoping to introduce more competition and stability into the market, ministers will not encourage bidders with big UK presences such as Barclays, HSBC and Spain’s Santander, which subsumed Abbey National, Alliance & Leicester, and Bradford & Bingley during the financial crisis. Likely candidates are therefore new or fledgling entrants into the banking market or foreign groups with substantial operations in other countries. It is thought that supermarkets or other retailers with interests in building current account facilities such as Tesco, Sainsbury’s, Boots, WHSmith or Sir Richard Branson’s Virgin Money, could make bids. Building societies, co-operatives or other financial services institutions could also be in the running.

Is it good news for the taxpayer?

At the Labour party conference, Mr Brown pledged to make last October’s dramatic bank bail-out pay for the average UK taxpayer. The government remains tight-lipped about the sort of prices these new banks may be sold for, but it is highly unlikely to be enough to cover the cost of the intensive care the banks have been in. RBS and Lloyds received a capital injection of £37 billion, and that is before counting any losses that might eventually land on the taxpayers’ doormat from the government insuring billions of pounds of the most toxic assets of RBS. The government will hope that the sale of these banks will go at least some way to recouping some of the billions spent at a time when the public finances are in such a parlous state. But with the sales not happening before the next general election, the taxpayer will have to wait.

What will the new High Street look like?

Since the onset of the crisis, the big banks have been furiously consolidating branches and closing stores with the loss of thousands of jobs. The rise of internet and telephone banking as consumers seek convenience, and banks try to cut costs, has also led to the slow demise of the High Street bank manager that knows the name of every customer. But the revival of two historic brands associated with personal banking, Williams and Glyn’s and TSB could herald a return to the importance of a High Street presence. If the Government manages to generate more competition in retail banking, branches may once again vie for prize spots in town centres.

Is it good news for consumers and businesses?

In economic textbooks, more competition is usually deemed to be good news for the customer. It is likely that the new entrants will seek to improve on existing retail services as they try to win customers. However, smaller banks focused on the nuts and bolts of consumer and business banking are also likely to be less profitable institutions and that may come at the public’s cost. There may be more choice, but it is not clear if banking services will be any cheaper. The Government’s plan to force Lloyds and RBS to hand out more mortgages and loans to businesses has so far delivered mixed results. The banks argue that there is little appetite for loans from either consumers, who are cutting their spending, or businesses fearful of investing in this economic climate. When these new banks are sold by the government, compelling them to lend gets even harder. Ultimately, the pace of lending to the wider economy is likely to depend more on a broader recovery in Britain.

Will it improve the stability of the financial system?

The speed with which the financial system unravelled still remains shocking a year on. So these new entrants in the British banking universe are likely to be focused on the basics: providing current and savings accounts as well as lending to home owners and businesses. What’s more they will only be lending what they get in from depositors – a model far removed from the old Northern Rock and HBOS when they relied on their own borrowing to plug the gap between what they handed out in loans and what they had in the bank. That certainly ticks a box for financial stability. However, this week’s announcement from the Government will not really address the 'too big to fail’ question that is at the heart of the future shape of banking. Big banks, such as Barclays and HSBC, still provide the very basics like current accounts and savings accounts but at the same time own investment arms engaged in far riskier and typically more profitable activities. What’s more, there’s nothing to stop a big foreign institution like Bank of America buying one of these new banks

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Pilots 'face same distractions as drivers'

"I have my own ideas about this, but I'm going to work with the folks at the FAA and our department to deal with this issue," LaHood said. "We're going to take a very close look at that entire issue."

The Obama administration and lawmakers have already expressed interest in targeting distracted driving, including the use of mobile devices while behind the wheel. LaHood held a summit meeting in September that brought together researchers, regulators and other experts on distracted driving.

WASHINGTON - The two airline pilots who overshot their destination by 150 miles have prompted the Obama administration to broaden its look at distracted driving to include distracted flying, Transportation Secretary Ray LaHood said today.



The use of mobile devices and laptops while driving any type of vehicle is unsafe, LaHood told a hearing of the Senate Commerce, Science and Transportation Committee.

"We're not going to equivocate on this. Any kind of distraction, whether it's trains, planes or automobiles is a distraction and we should figure out ways to get these cell phones, the texting, ... and the use of laptops out of the hands of people who are supposed to be delivering the public to somewhere safely," LaHood said.

The pilots of Northwest Airlines Flight 188 told safety investigators they lost track of time and place while using their laptops to work out crew schedules. They said they were out of communications with air traffic controllers and their company's dispatchers for 91 minutes while cruising in their Airbus 320 at 37,000 feet, unaware that they had flown past their destination of Minneapolis in the upper Mideast until a flight attendant called them on an intercom.
The incident "raises serious safety concerns," said Sen. Jay Rockefeller, D-W.Va., chairman of the committee.

Sen. Frank Lautenberg, a Democrat, noted that the Federal Aviation Administration does not prohibit the use of laptop computers above 10,000 feet and asked whether the Transportation Department might regulate the use of laptops by pilots.
A group of senators proposed legislation that would offer incentive grants to states that approve laws to combat distracted driving.

"Texting takes your eyes off the road - long enough at high speeds to travel the length of a football field," Rockefeller said.

The FAA said that it had revoked the licenses of the Northwest pilots - Timothy Cheney, the captain, and Richard Cole, the first officer. Phone messages left at the homes of the pilots were not returned.

The pilots have 10 days to appeal the revocation to the three-member National Transportation Safety Board, the same agency that investigates air crashes and makes safety recommendations. If an appeal fails, they can apply for a new license after one year.

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