Stocks limped to the finish of a brutal week on Wall Street, with the Dow touching bear territory and the broader market continuing to be battered by a double dose of surging oil and a fresh round of banking troubles.
The bluechip index Dow briefly fell more than 20 percent from its October high, the benchmark for a bear market, before getting a mild bounce that saw it still remain lower. The Dow fell to 11,348.96, off just less than 1 percent, while the Nasdaq finished lower at 2315.63 or 0.25 percent and the S&P was at 1278.49, down 0.34 percent.
The other two major indexes, the S&P 500 and the Nasdaq, both teetered near bear territory as well as U.S. crude oil hit a new record before backing up and closing above $140 a barrel. A mild, late uptick kept the indexes out of official bear territory.
For the week, the Dow was off about 4 percent, the Nasdaq down 5 percent and the S&P dropped 3.4 percent.
Financial stocks, particularly large investment banks and brokerages, did the most damage. A late surge in volume from the Russell 3000 rebalancing did little to help markets.
Stocks briefly hit their intraday low after Moody's Investor's Service said it may cut Morgan Stanley's credit rating. Morgan Stanley declined comment on the move and the stock actually moved up shortly after.
The troubles with credit were garnerning more attention than the indexes moving into new technical ground.
"That's really what's pulling this market down, not the fact that we've come to a near bear market correction," said Michael Kresh, president of M.D. Kresh Financial Services in Islandia, N.Y.
Merrill Lynch dropped after sources inside the firm told CNBC that writedowns will likely be between $3 billion and $5 billion.
Earlier, Lehman Brothers had estimated that Merrill would write down as much as $5.4 billion and lowered its price target on Merrill stock.
Lehman Brothers shares skidded after bank analyst Richard Bove of Ladenburg Thalmann said he now expects a wider loss from Lehman this year and cut his price target on Lehman stock to $27 from $30.
Banks, Builders and Oil
Merck was one of the stocks that helped stocks stave off a deeper slide, as the drugmaker moved up more than 4 percent on news that its migraine drug performed well against AstraZeneca's Zomig in a study.
General Motors , rose at the open but quickly resumed its decline after falling to a 53-year low in the prior session.
Shares of KB Home tumbled after the homebuilder reported its loss widened to $255.9 million from $148.7 million a year earlier. Revenue plunged more than 50 percent to $639.1 million as the number of homes sold dropped by 41 percent and the average price fell 17 percent.
Financial shares wobbled after Thursday's bloodbath -- regional banks and a handful of Wall Street brokerages had bouts of gains then resumed their slide.
Today is expected to be one of the heaviest volume days of the year, with the annual Russell rebalancing taking effect. The Russell 3000 will delete underperforming stocks and add stronger companies, moves that often generate huge trading amounts on companies that otherwise draw relatively little attention.
AIGwas the biggest drag on the Dow after the company told Bloomberg that it plans to absorb up to $5 billion on losses from investments in dozens of insurances units smacked by the subprime crisis. The world's largest insurer had previously estmated losses at $500 million after $13 billion in write-downs.
In economic news, personal spending rose 0.8 percent, more than expected, in May as the stimulus checks helped put a few more dollars in household budgets. But consumers' moods haven't improved: The University of Michigan reported its gauge of consumer sentiment dropped to another 28-year low in June.
Palm skidded after the hand-held device maker late Thursday reported a worse-than-expected loss and said sales of Treo phones were slowing.
Shares of Research In Motion and Apple also declined.
In mergers and acquisition news, InBev has filed a lawsuitto confirm that Anheuser-Busch shareholders can remove the U.S. brewer's entire 13-member board without cause, a move expected to turn its $46.3 billion takeover bid hostile. That came as Anheuser-Busch's board formally rejected InBev's $65-per-share offer to acquire the company, saying it's financially inadequate.
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