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Stocks slip as China raises a key rate

Strengthened dollar, mortgage mess also weigh on market

By David K. Randall
Associated Press / October 20, 2010

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NEW YORK — A stronger dollar and a surprise interest rate hike in China that may slow that country’s economy helped push stocks sharply lower yesterday.

The Dow Jones industrial average fell below 11,000 for the first time in a little more than a week, reversing a streak that had pushed the index up nearly 7 percent for the year. It was the largest single-day drop in the market since early August.

Bank of America Corp.’s 4.4 percent decline was the largest in the Dow. It came amid reports that a group of investors, including BlackRock Inc. and Pacific Investment Management Co., are attempting to force the bank to repurchase mortgages put out by Countrywide Financial Corp., which Bank of America bought in 2008. BlackRock and Pimco declined to comment.

The broader stock market fell following an announcement that China, whose rapid growth has helped pull the global economy along, has raised a key interest rate to fight inflation.

That pushed down shares of US companies, many of which consider China an important market.

The Dow fell 165.07, or 1.5 percent, to 10,978.62. The Standard & Poor’s 500 index fell 18.81, or 1.6 percent, to 1,165.90, while the Nasdaq Composite index fell 43.71, or 1.8 percent, to 2,436.95.

After the market closed, Yahoo Inc. announced its total revenue for the third quarter came to $1.6 billion, up less than 2 percent from the $1.58 billion it earned at the same time last year. After accounting for a one-time gain from the sale of its help-wanted site, the company earned 16 cents per share, one cent more than analysts were expecting. Shares of Yahoo were up 1 percent in after-market trading.

Earlier in the day, disappointing news from Apple Inc. and IBM Corp. helped send the technology-heavy Nasdaq down about 2 percent. Both companies beat earnings forecasts when they reported results late Monday, but each delivered news that investors did not like. Apple didn’t sell as many iPads as analysts had hoped, and a measure of profitability was lower than expected. IBM’s outsourcing business didn’t do as well analysts predicted.

“On average, the earnings reports have beaten expectations, but now investors are asking, ‘What’s next?’ ’’ said Jonathan Satovsky, the head of Satovsky Asset Management. “Even Apple reduced guidance for the fourth quarter of the year.’’

The dollar rose 1.7 percent against a basket of currencies, while gold fell 2 percent.

The strengthening dollar led to a broad sell-off of commodities. That dragged down stocks of companies in the energy and materials sectors of the S&P 500, which were both down more than 2 percent.

“The dollar rebounded pretty significantly today, and that’s one of the primary drivers of the market,’’ said John Pandtle, who is a co-manager of the Eagle Large Cap Value fund.

For weeks, traders have been anticipating that the Federal Reserve will expand a program to buy bonds in hopes of encouraging spending. That has led many investors to buy stocks, despite questions about the strength of the economic recovery.

“We’re seeing a mixed bag from earnings reports and housing numbers,’’ said Doug Roberts, chief investment strategist for Channel Capital Research, citing a report that showed a slight increase in homebuilder confidence. “If the Fed wasn’t sitting there following through with liquidity, then we’d be in a very different situation.’’

Goldman Sachs Group, which reported results before the bell, earned $1.74 billion, or $2.98 a share, much higher than the $2.32 per share analysts predicted. Its shares rose $3.02, or 1.9 percent.

Some traders may be taking earnings announcements as an opportunity to sell and record gains. “We’re seeing some profit-taking today after the tremendous September and first week of October that we’ve seen in the market,’’ said Eric Marshall, director of research at Hodges Capital.

Coca-Cola Co., which reported earnings yesterday, was one of only two stocks in the Dow with gains. The other was chip maker Intel Corp.