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BL: U.S. Stocks Fall, Led by Financials; Countrywide, Exxon Drop

By Michael Patterson

Aug. 27 (Bloomberg) -- U.S. stocks declined after Lehman Brothers Holdings Inc. analysts reduced their earnings estimates for Countrywide Financial Corp. and traders pared bets that the Federal Reserve will lower its benchmark lending rate.

Financial stocks were the biggest drag on the Standard & Poor's 500 Index after Lehman cited ``extraordinary weakness'' in the secondary market for loans held by Countrywide, the biggest U.S. mortgage lender. Exxon Mobil Corp., the world's largest oil producer, led energy shares lower as fuel prices retreated.

The S&P 500 lost 8.93, or 0.6 percent, to 1,470.44 as of 12:29 p.m. in New York. The Dow Jones Industrial Average slipped 33.65, or 0.3 percent, to 13,345.22. The Nasdaq Composite Index fell 14.8, or 0.6 percent, to 2,561.89.

The S&P 500 has dropped 5.3 percent from a July 19 record amid concern defaults on mortgages will hurt earnings at lenders and slow the world's largest economy. A gauge of homebuilders in S&P indexes dropped to the lowest since August 2003 today after sales of previously owned houses fell in July for a fifth month and the glut of unsold properties climbed to a 16-year high.

``Residential real estate is having a real downturn,'' said Scott Minerd, who helps oversee about $24 billion as chief investment officer at Guggenheim Partners Asset Management in Santa Monica, California. ``Until the Fed does something to lower the cost of debt, this drag on the consumer will continue.''

U.S. stocks posted their biggest advance in five months last week and expectations of share volatility had their steepest weekly decline since at least 1990, helped by speculation the Fed will take steps to stem losses in credit markets.

Fed futures contracts today showed traders see a 28 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, down from 42 percent odds on Aug. 24.

Countrywide Drops

Countrywide declined $1.04, or 5 percent, to $19.96 for the biggest slide in the S&P 500. Lehman analysts led by Bruce Harting reduced their 2007 earnings-per-share estimate to $1 from $2.80, according to a research note today. They lowered their 2008 estimate to $1.55 from $3.

Separately, Piper Jaffray & Co. downgraded Countrywide shares to ``market perform'' from ``outperform.''

Bank of America Corp., which last week bought $2 billion of preferred stock in Countrywide, slipped 62 cents to $51.25. Lehman, the biggest underwriter of U.S. bonds backed by mortgages, dropped $1.66 to $58.71.

Financial shares in the S&P 500 fell 0.7 percent as a group.

Energy Shares Drop

A gauge of energy shares in the S&P 500 dropped 1 percent after prices for crude oil, natural gas and gasoline fell in New York. Exxon declined 74 cents to $84.95. ConocoPhillips, the third-largest U.S. producer, lost 2 cents to $80.72.

Sales of previously owned homes declined 0.2 percent to an annual rate of 5.75 million, the National Association of Realtors said today in Washington. While the retreat was less than forecast, inventories of single-family homes rose to the equivalent of 9.2 months' supply and sales dropped 9 percent.

Fifteen of 16 homebuilders in S&P indexes fell. Lennar Corp., the largest U.S. builder by sales, dropped $1.23 to $28.67. D.R. Horton Inc., the second biggest, declined 59 cents to $15.42.

To contact the reporter on this story: Michael Patterson in New York at [e-mail] .

Last Updated: August 27, 2007 12:31 EDT