Oil's Advance Weighs on Stocks

Stocks declined Monday as oil prices ticked higher and credit concerns lingered. Volume is expected to be low this week as the summer winds down.

Crude oil rose above $115 a barrel, as some traders saw buying opportunities from Friday, when crude fell more than $6, or 5.4 percent, to settle at $114.59, marking its biggest one-day percentage drop in nearly four years.

The dollar was lower against the yen and steadied against the euro. The U.S. currency hit a two-year high against the pound amid increased worries about a UK recession.

In economic news, existing-home sales rose 3.1 percent to a 5 million annual rate, the highest level in five months, the National Association of Realtors said. The national median existing-home price dropped 7.1 percent from a year earlier to $212,400.

Home prices in some regions could soon increase, said Lawrence Yun, chief economist at the NAR. "Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time," he said.

Inventory levels remain high but will take time to work through, Yun said. "We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns."

Financials were the biggest drag, with AIG , American Express and Bank of America rounding out the top three decliners on the Dow.

Worries that the credit crunch is far from over continue to haunt markets, with investors increasingly believing in the likelihood of a federal bailout of home-funding giants Fannie Mae and Freddie Mac .

Citigroup said it is unlikely that the home-financing giants will be nationalized and slashed its price targets on the stocks, cutting Freddie to $6 from $16 and Fannie to $9 from $21, according to theflyonthewall.com.

Lehman Brothers shares came under pressure after a top regulator expressed concern about state-run Korea Development Bank's interest in buying a global bank. Lehman had rallied last week on news that Lehman might be a takeover target for KDB or another firm.

Adding to the agitation, Indiana sued Countrywide Financial, becoming the latest state to take the mortgage lender to court over its lending practices.

General Motors and Ford slipped following a report that U.S. auto makers are likely to post big declines in August sales despite a slight improvement in industrywide sales.

The big news of the past week has been that U.S. auto makers are seeking a bailout from the U.S. government. The Big Three plan to urge Congress to support funding of up to $50 billion in low-interest loans over three years to help them modernize their assembly plants and develop next-generation fuel-efficient vehicles, with representatives of the industry insisting this is not a bailout but a response to the new market conditions.

Shares of Advanced Micro Devices rose amid news that the company will sell its TV-chip division to Broadcom for $192.8 million. The sale is part of AMD's plan to pare debt and boost profitability.

THIS WEEK:

MONDAY-THURSDAY: Democratic National Convention in Denver

MONDAY: Existing-home sales; Reports from Chicago, Dallas Fed branches; Earnings from China Unicom
TUESDAY: ICSC chain-store sales; Case-Shiller home-price index; New-home sales; Richmond Fed report; consumer confidence; Fed minutes; Census bureau releases 2007 stats; Earnings from Smithfield Foods, Big Lots
WEDNESDAY: Weekly mortgage applications; durable goods; Fed's Lockhart speaks; weekly crude inventories; Report from Chicago Fed; Earnings from American Eagle, Dollar Tree
THURSDAY: Jobless claims; GDP, corporate profits; natural-gas inventories; Earnings from Sears Holdings, Tiffany and Dell; Barack Obama's acceptance speech
FRIDAY: Personal income and spending; Chicago manuf. report; consumer sentiment; farm prices

WATCHERS: McCain VP announcement

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