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Stocks Have New Year's Hangover

Stocks had one of their worst opening days ever after getting slammed by $100 oil and bad news for manufacturing and the credit industry.

The Dow Jones Industrial Averaged plunged about 220 points, one of the biggest declines ever on the first trading day of the year. The Nasdaq and S&P 500 also had one of their worst opening days.

Before the market opened for the new year, the Institute for Supply Management said manufacturing contracted in December. Then, oil prices soared to $100 a barrel and private home building hit its lowest level in years.

The market briefly backed off its lows for the day after minutes from the Federal Reserve's December meeting suggested the central bank could be leaning towards an interest rate cut. But stocks quickly fell again when oil, which had retreated from its daily high, made a U-turn back up and closed at $99.64.

"I don't know whether institutions are repoisitioning themselves at the start of the year, or if there's some tax aspect to it," said David Twibell, president of wealth management at Denver-based Colorado Capital Bank. "Obviously we had some really ugly numbers out of the ISM, which told us nothing we didn't already know."

Stocks also were influenced by analyst downgrades in the financial industry and computer chipmakers.

Punk Ziegel analyst Richard Bove lowered his Citigroup outlook for 2007 and 2008, and CNBC reported earlier that the bank would begin laying off up to 10 percent of its employees starting next week.

Sanford and Bernstein analyst Howard Mason wrote in a Dec. 31 report that Citi may need to write down $12 billion of debt and boost reserves for bad loans by $1 billion. Mason also said Bank of America and JP Morgan Chase may have respective fourth-quarter writedowns of $5.5 billion and $1 billion.

"We are trimming our estimates for the fourth quarter of 2007 and 2008 to account for capital markets write-downs, loan loss reserve building, slower net interest margin re-normalization in 2008 and reduced buyback activity," Mason wrote.

In more bad news for financials, National City, one of the 10 largest U.S. banks, said it will cut its common stock dividend 49 percent and eliminate 900 jobsas it stops offering mortgages through brokers, and it plans to raise more capital to cope with weakened credit markets. Shares of the lender tumbled.

The day's developments rekindled recession fears, and traders were not assuaged by the minutes from the latest Federal Reserverate-cutting meeting, which showed the central bank's board to be divided over the wisdom of dropping borrowing costs.

"I think the market, regardless of what they Fed says, is going to be looking for the Fed to ease at their next meeting and even contemplating a 50-basis-point move rather than a 25," said Mike Englund of Action Research.

Oil soared more than $3 a barrel on renewed violence in oil exporter Nigeria and expectations of further declines in U.S. crude stocks, reviving worries of tightening supplies. Shares at energy companies were mostly higher.

Amazon, Qualcomm in View

Analyst upgrades at Amazon and Yahoo! sent those shares their higher, but Intel slipped after Bank of America cut its rating on the chipmaker and seven of its peers, a group that was leading losers on the S&P. Advanced Micro Devices and Texas Instruments also headed to the downside.

Qualcomm shares were under pressure, after the wireless chip maker said it is evaluating options including stays and appeals after a federal judge in California ruled on Monday the company must immediately stop selling third-generation, or 3G, WCDMA cellular chips that are seen to infringe on patents of rival Broadcom.

Downgrades also zapped the retail sector, with BJ's Wholesale Club falling to "neutral" from "overweight" in a move from JP Morgan analyst Charles Grom.