US Stocks Drop as Credit Worries Rattle Markets

US stocks closed sharply lower Friday on an incessant stream of bad news in financials and technology that bled over into the rest of the market.

Major indexes posted substantial losses amid disappointing economic reports and word of further credit-related turmoil among banking giants Wachovia and Capital One. By day's end, however, financials were one of the few sectors that had reversed its gains.

For the day, the Dow Jones industrial average was down 223.55 points, or 1.69 percent, at 13,042.74. The Standard & Poor's 500 Index was down 21.07 points, or 1.43 percent, at 1,453.70. The Nasdaq Composite Index lost 68.06 points, or 2.52 percent, to 2,627.94.

The rabid selloff began the bell and lasted throughout the day, as some of the biggest names on the Dow and Nasdaq posted substantial losses. The Nasdaq, which recorded sharp declines in the two previous sessions, was down 5.7 percent for the week and on track for its second worst week of the year.

"The market is just not happy with some of the news coming out Wachovia. We keep getting this data coming out from these thanks that's worse than expected," said Scott Martin of Astor Asset Management. "The market is finding out that things are a lot worse than what we were told and what we thought."

Data showing that October import prices rose faster than expected pushed the market down further as confidence waned that the US economy will be able to weather the subprime storm.

Turbulence continued, with the Chicago Board Options Exchange's Volatility Index posting gains that brought it up 33 percent for November.

Both Wachovia , with a $1.3 billion subprime writedown, and Capital One , with its report that more people are having trouble paying their credit card bills on time, led the lurch downward for the banking sector.

Also, Fannie Mae, the largest source of mortgage financing, reported before the bell that its third-quarter net loss that was double its loss from a year earlier because of slumping home prices and the squeeze in credit markets that drove values of mortgage securities lower.

Techs were battered as well, with the biggest tech losers Cisco, Google, Qualcomm, Microsoft and ClearWire, the startup which fell to a new low on news that it had scrapped a proposed nationwide WiFi partnership with Sprint.

Big Dow draggers included Walt Disney, which reported a 12 percent rise in quarterly profit after the bell Thursday that nonetheless missed expectations, along with General Motors and Caterpillar.

Shares of diversified manufacturer and Dow component 3M dropped after Goldman Sachs cut the stock to "sell" from "neutral."

Oil rose above $96 on winter fuel supply concerns, a tumbling U.S. dollar and big options positions betting oil could strike $100 next week.

Of the companies moving the market, Estee Lauder was a big gainer, posting an 8.3 percent move upward after the cosmetics maker announced a new chief operating officer.

In other economic data released Friday morning, the US trade deficit narrowed unexpectedly in September to its lowest since May 2005 as exports set a record, according to the Commerce Department.

And consumer sentiment posted a surprisingly sharp fall in early November, hitting its lowest in two years as high energy costs and falling home prices pummeled confidence, a survey released Friday showed.

Merck Announcement

Merck announced that it has agreed to pay $4.85 billion as part of claims over injuries allegedly linked to its Vioxx painkiller, the Wall Street Journal said on Friday, citing a person familiar with the matter. Shares rallied on the move.

On currency markets, the dollar continued to flounder, posting new lows against the Japanese yen, the euro and a basket of other currencies.

Treasuries rose for a fourth straight day, pushing benchmark yields to their lowest in more than two years as investors sought safety in government debt.