Economic Worries Drag on Market

Stocks wobbled Wednesday as economic worries continued to nag the market and rain on the post-Gustav rally.

In Tuesday's trading, the Dow had been up about 250 points at one point but tech weakness, prompted by concerns that the global slowdown will crimp tech spending, sucked the air out of the rally.

"People are glad that oil is selling off but they're more concerned about the economy," Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams, told CNBC.

Crude oil fell another $2 Wednesday, trading below $108 a barrel, amid relief that Hurricane Gustav spared most major oil facilities in the Gulf of Mexico. However, Goldman Sachs cautioned that oil will likely spike back to $149 a barrel by the end of the year. Oil will be supported by robust demand from China, which shut down some of its energy-hungry factories during the Olympics, Goldman said.

Meanwhile, the dollar hit an 11-month high against the euro, on the back of falling oil prices and on widespread worries that while the worst is over for the U.S. economy, it's Europe's turn to face the brunt of the credit crunch.

Fannie Mae gave a boost to financials — and for a brief, shining moment the whole market — after the home-financing giant said it sold $2 billion of short-term debt at a lower interest rate than last week.

Lehman Brothers was back in the spotlight following news that Ospraie Fund, a commodities fund in which Lehman has a 20 percent stake, is closing and will return money to investors after incurring big losses this year. Also, an investment in Lehman by Korea Development Bank in conjunction with other banks appeared to be on the rocks after two banks involved distanced themselves from that speculation.

Techs, which are seen as having the most exposure overseas, were among the hardest hit by the economic worries and the dollar's drop.

Qualcomm dragged on the Nasdaq after the chip maker's CEO told CNBC that the company is seeing signs of users slowing their cellphone upgrades.

Corning skidded after the company, which is the world's largest maker of glass for liquid-crystal displays for televisions and computers, slashed its third-quarter outlook.

Intel and Hewlett-Packard were among the biggest drags on the Dow, along with commodity stock Alcoa .

Home Depot was the biggest gainer on the Dow after the company's CEO said the housing sector will likely remain under pressure through early 2009 but that the end is in sight. A day earlier, Goldman Sachs raised its rating on Home Depot to "buy" from "neutral."

Morgan Stanley is raising $10 billion for a global property fund and plans to put $1.5 billion or more of that into China, shrugging off concerns about a property market downturn, according to a Reuters report.

Meanwhile, shares of Ambac Financial surged following news that the bond insurer gained approval from the Wisconsin Department of Insurance to reactivate its Connie Lee Insurance unit to begin offering coverage of municipal bonds and other public finance instruments.

Also, Ambac showed signs that investors' faith is being restored in its credit standing, as it reported a $2.47 billion unrealized loss in the fair value of July credit derivatives.

Coca-Cola will pay $2.5 billion for Chinese juice maker Huiyuan, triple its value, tightening its grip on a booming market in the biggest foreign takeover in China.

In economic news, factory orders jumped 1.3 percent, more than the 1 percent expected, in July, helped by a rise in transportation orders. However, even when transportation was stripped out, orders still rose 1 percent. Factory orders have now risen for five straight months.

The Federal Reserve is due to release its beige book survey of the economy at 2pm ET.

"The beige book will reflect the downcast macro conditions expressly outlined in the recent FOMC minutes with an emphasis placed on the deteriorating situation in the housing sector, non-functioning credit markets and the difficulties currently seen in the manufacturing sector," independent research company IDEAGlobal said in an analysis note.

Auto makers will release August sales throughout the day and are expected report a 10th straight month of decline as pinched consumers hold off on major purchases.

Nissan was the first out of the gate and the Japanese auto maker reported its sales jumped 14 percent as the drop in gasoline prices helped boost truck and SUV sales.

Ford, however, reported its U.S. sales tumbled 27 percent amid the drag of truck sales and clipped its second-half production plan by 50,000 vehicles.

Shares of General Motors and Toyota rose ahead of their sales reports.


MONDAY-THURSDAY: Republican National Convention

WEDNESDAY: Weekly mortgage applications; ADP employment report; auto sales; factory orders; crude inventories; Fed's beige book; Earnings from Staples, H&R Block and Hovnanian; GOP VP Candidate Sarah Palin speaks
THURSDAY: Monster employment report; jobless claims; productivity; ISM services index; Fed's Yellen speaks; Earnings from Toll Brothers
FRIDAY: August jobs report; earnings from Nat Semi

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