Stocks ended sharply lower, led by financials, after comments from the SEC chairman rattled a market already depressed by meteoric oil prices.
The Dow Jones Industrial Average dropped more than 200 points, or 1.6 percent, to close at 12814.35. The Nasdaq and S&P 500 index each shed 1.8 percent, with the S&P finishing below the key 1400 mark.
SEC Chairman Christopher Cox said the agency plans new requirements for more transparency with brokers' and insurers' capital levels and liquidity positions.
"One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence there is a great need for information about capital and liquidity,'' Cox said, speaking to reporters after a securities conference.
AIG fell 6.7 percent, making it the biggest decliner on the Dow, amid jitters ahead of the insurer's earnings, due out after the bell Thursday. Analysts expect to see losses in AIG's insurance-investment and credit-default-swap portfolios and remain concerned that the company may have to raise additional capital.
Financials dominated Dow decliners. Rounding out the top five were: Citigroup, American Express , General Motors and JPMorgan , which all lost more than 3 percent.
Shares of Marsh & McLennan ticked higher after the insurance brokerage reported it swung to a net lossamid a writedown for its Kroll unit but beat expectations with its operating profit.
Crude oil rocketed past the $120 mark this week, soaring above $123 a barrel to settle Wednesday at a record $123.53. There was a brief dip below $121 a barrel after the EIA reported that crude inventories rose by 5.7 million barrels, more than four times what economists had expected, but then it was right back up.
Crude's rise has become so troubling to the market that stocks have begun to trade regularly in oppposition with crude's moves, and if it continues over the summer, it could stall the rebound in the economy and the market.
A brief reprieve came from better-than-expected economic news.
Existing-home sales fell just 1 percent between March and April, the National Association of Realtors reported. Of course, the year-over-year comparison was much more dramatic: Home sales were off 20 percent in April from a year earlier. Earlier, a separate report showed U.S. mortgage applications rose for the first time in three weeks.
Nonfarm productivity rose at a 2.2 percent annual rate in the first quarter, better than the 1.5 percent expected and the 1.8 percent logged in the fourth quarter of 2007. Labor costs grew at a 2.2 percent annual rate, the slowest pace in four years.
Market strategists noted that the market's downward trend in the past few sessions is a natural pullback from the rally that started in mid-March, in which the Dow Jones Industrial Average has gained more than 10 percent.
"It's been a great run ... but this is where we get off the train," Bill Strazzullo, chief marketing strategist at Bell Curve Trading, told CNBC, citing persistent problems related to subprime mortgages, the credit crisis and the housing market. And, with the Dow and S&P within 10 percent of their all-time highs, "Ask yourself, do the risks really justify the rewards at these levels? ... No."
"We continue to believe the bear market is in the process of transitioning to a bull," Wachovia strategist Al Goldman wrote in his weekly note. Still, Goldman advises caution. It's "a good idea not to get caught up in what appears to be excessive euphoria," Goldman said. "Our advice is to remain optimistic about the stock market, but cool your jets a bit so you will have some buying power when emotions cool down."
The Federal Reserve is looking more closely at rising food and energy prices, Kansas City Fed President Thomas Hoenig said, according to Reuters. The could result in more focus from policy makers on the headline consumer price index (CPI), rather than the core CPI, which excludes food and energy prices when measuring inflation.
Cisco Systems after the bell Tuesday beat profit and sales forecastsbut shares slipped 2.1 percent amidconcerns that orders have slowed.
Walt Disney was the best performer on the Dow, climbing 2.9 percent, after the media giant reported its profit rose 22 percent and surpassed earnings expectations, helped by its film and theme park businesses.
Retail stocks were mostly lower ahead of April same-store sales reports, due out Thursday, though there were a few gainers, including Wal-Mart , JCPenney and AnnTaylor .
Analysts expect retailers' same-store sales to climb 2.5 percent, according to a survey by Thomson Reuters. Excluding Wal-Mart, such sales are expected to rise 2.9 percent. Wal-Mart's sales are expected to tick up 2.1 percent, while department stores are expected to post a 1.5-percent drop.
A $14.6 Billion Mobile-Broadband Deal
Sprint and Clearwire announced a $14.6-billion joint venture to provide high-speed wireless Internet access for mobile phones and laptops.
The new company, to be named Clearwire, will receive a $3.2 billion investment from Intel , Google, Comcast, Time Warner Cableand Bright House Networks.
Meanwhile, Microsoft is probing a possible acquisition of social-networking site Facebook after talks broke down with Yahoo . Facebook, one of the hottest properties on the Internet, is still owned by the Harvard student who founded it in 2004.
News Corp. , which owns rival social site MySpace as well as the Wall Street Journal, reported after the closing bell that its net tripled due to a one-time gainfrom a stock swap with Liberty Media. Excluding items, earnings fell short of expectations by a penny.
Still to Come:
THURSDAY: Retail same-store sales; Jobless claims; Wholesale trade; Cablevision earnings
FRIDAY: Trade report
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