(RTTNews) - Stocks are more than offsetting the notable gains posted in the previous session in early afternoon trading on Wednesday, as they consider the ramifications of the government’s bailout of troubled insurer AIG (AIG).

Late Tuesday, the Federal Reserve Board said that the Federal Reserve Bank of New York is providing a two-year, $85 billion secured revolving credit facility to beleaguered AIG.

AIG avoided a disorderly failure by accepting a rescue that provides an $85 billion loan from the federal government in return for a 79.9 percent stake in the company. The U.S. reversed its opposition to a bailout after the Federal Reserve concluded that “a disorderly failure of AIG could add to already significant level of financial market fragility.” The loan is expected to be repaid from the proceeds of the sale of the company’s assets.

Following the news, top government agencies are working to supply themselves with much needed liquidity Wednesday. The U.S. Treasury Department is working to raise $40 billion through the sale of cash management bills, which it will then send to the Federal Reserve as they attempt to salvage the swiftly disappearing bedrock of Wall Street.

Meanwhile, the Securities and Exchange Commission announced Wednesday that is taking several actions to strengthen investor protections against “naked” short selling.

Naked short selling allows a seller to not actually borrow the stock and therefore not deliver it to the buyer. This allows manipulation of the markets more so than with normal short selling, when actual borrowing and selling of the stock must take place.
“These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling,” SEC Chairman Christopher Cox said in a statement. “The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation.”

On the economic front, the Department of Commerce released its report on housing starts before the start of trading, showing that housing starts fell by much more than expected in the month of August, falling their lowest level in over seventeen years.

Commenting on the data, Chris Low, Chief Economist at FTN Financial Group, said, “Homebuilders have thrown in the towel. Until sales recover, starts are on hold.”

In recent trading, the major averages have moved off of their intraday lows, although they remain firmly in negative territory. The Dow is currently down 306.71 at 10,752.31, the Nasdaq is down 72.29 at 2,135.61 and the S&P 500 is down 40.10 at 1,173.49.

Sector News

Brokerage stocks are contributing to the weakness in the broader markets, with the Amex Securities Broker/Dealer Index plunging 10 percent. The index has been in a free fall for the past week, and it set a five-year intraday low earlier in the session.

Among brokerage stocks, the final remaining independent firms Morgan Stanley (MS) and Goldman Sachs (GS) are among the worst performers, down 30.5 percent and 23.9 percent, respectively. While both companies reported better than expected quarterly results this past week, investors remain concerned over the health of the firms.

Elsewhere in the financial sector, Wachovia (WB) is leading bank stocks lower, as it falls 19.6 percent, setting a two-month intraday low. The KBW Bank Index is down 7.8 percent, although it remains in a weekly trading range.

Steel stocks are also showing considerable weakness, after Tuesday’s announcement that the Federal Reserve is holding its key interest rates steady at 2 percent. The Amex Steel Index is currently seeing a decline of 8.6 percent after setting a yearly intraday low earlier in the session.

Hurt by an increase in oil prices, airline stocks are also seeing significant selling pressure. The Amex Airline Index is down 9.4 percent, reversing the notable gain posted in the previous session. The index posted gains in the four previous sessions, setting a six-month closing high on Tuesday.

Following the release of the housing starts data, housing stocks are also posting substantial losses. The Philadelphia Housing Index is down 4.2 percent, reversing a notable gain posted on Tuesday.

Other stocks that are notably lower include networking, wireless and real estate stocks. The Amex Networking Index is down 4.7 percent, the Amex Wireless Index is down 4.2 percent and the Morgan Stanley REIT Index is down 4 percent.

On the other hand, gold stocks are seeing significant buying interest, as investors flee to the safety of the precious metal. The price of the precious metal is soaring more than $60 an ounce, contributing to a 9.3 percent gain by the Amex Gold Bugs Index.

Stocks In The News

Among individual stocks, Nortel Networks (NT) is seeing significant selling pressure after the company issued third-quarter preliminary revenue guidance below market projections. The company said it currently expects third-quarter revenues to be about $2.3 billion, while analysts had expected to see revenues between $2.55 billion and $2.81 billion.

Shares of the networking provider are currently plummeting 45.7 percent, reversing a modest gain posted in the previous session. Earlier in the day, the stock set a multi-year intraday low.

Conseco (CNO) is also posting a substantial loss following news that the company trimmed its holdings in several troubled companies on Wall Street in the past few months. The insurer said it had about $103 million in securities in AIG, Washington Mutual (WM) and Lehman Brothers. The stock is currently down 52.6 percent after setting a multi-year intraday low earlier in the session.

On the other hand, SanDisk (SNDK) is sharply higher after the company said its board of directors unanimously rejected an unsolicited offer from Korea-based chipmaker Samsung Electronics Ltd. to acquire SanDisk for $26 per share or a total of $5.85 billion in cash. The stock is currently up 40.5 percent after setting a three-month intraday high earlier in the day.

Other Markets

Stock markets across the Asia-Pacific region closed mixed on Wednesday after a firm start, although Japan’s Nikkei 225 average closed up 1.2 percent.

The major European markets ended the day sharply lower. The French CAC 40 Index closed down 2.1 percent, while the German DAX Index fell 1.8 and the U.K.’s FTSE 100 Index plunged 5.8 percent.

Meanwhile, treasuries continue to show notable strength, with the benchmark ten-year note just coming off of its intraday high. Subsequently, the yield on the ten-year note is currently down 13.2 basis points at 3.359 percent.

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

Subscribe by RSS Subscribe by Email  Email This Post To A Friend