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Market Snapshot

Stocks Finish Solidly Lower

U.S. stocks closed lower Thursday, extending losses suffered overseas. The pullback on Wall Street came after S&P Ratings revised its outlook on the U.K. to negative from stable, and as U.S. data showed continuing jobless claims at record highs. Tnvestors debated whether the stock market was entering a correction after an extended rally from its March lows.

On Thursday, the 30-stock Dow Jones industrial average finished lower by 129.91 points, or 1.54%, at 8,292.13. The broader S&P 500 index fell 15.14 points, or 1.68%, to 888.33. The tech-heavy Nasdaq composite index shed 32.59 points, or 1.89%, to 1,695.25.

Treasuries were off after the Fed purchased government debt; prices had risen earlier on a flight to safety as stocks fell on reports initial jobless claims eased, the Philadelphia Fed index barely moved, and the index of leading economic indicators rose.

Bonds and the dollar index fell. Gold futures rose.

The approaching holiday weekend kept some investors on the sidelines, says S&P MarketScope.

Among the blue chips, Caterpillar (CAT), Home Depot (HD), and Alcoa (AA) were big losers. Nasdaq losers included Research in Motion (RIMM) and eBay (EBAY).

Energy stocks fell as crude oil prices retreated.

The UAW, Treasury Dept., and General Motors Corp. (GM) reached an agreement on the automaker's retiree medical obligations.

Bond fund manager Bill Gross of PIMCO blamed the sell-off of U.S. bonds, stocks and the dollar on jitters surrounding the U.S. potentially losing its AAA debt rating.

U.S. jobless claims fell 12,000 to 631,000 in the week ended May 16, from a revised 643,000 level for the week ended May 9 (from 637,000). The four-week moving average dipped to 628,500 from 632,000. Continuing claims rose another 75,000 to 6,662,000 from a revised 6,587,000 (was 6,560,000) -- a 16th straight record high.

The Conference Board's index of U.S. leading economic indicators rose 1.0% in April to 99.0, and stronger than the 0.8% increase expected by markets. Seven of the ten indicators posted gains, paced by stocks, the yield curve, consumer sentiment and jobless claims.

"The stronger than expected reading joins other data supporting notions that the economic contraction is slowing," says S&P senior economist Beth Ann Bovino.

The U.S. Philadelphia Fed index rose to -22.6 in May, from -24.4 in April, weaker than the -16 that markets expected and the -15.6 reading a year ago. It is the third straight monthly gain since hitting a 19-year low of 41.3 in February. The employment index jumped to -26.8 from -44.9, while new orders fell to -25.9 from -24.3. Both prices paid and prices received rose to -22.8 from -31.5, and -33.8 from -41.4, respectively. The 6-month business activity index climbed to 47.5 from 36.2.

Treasury Secretary Timothy Geithner has been testifying before the House Appropriations financial services subcommittee on numerous topics, similar to his wide-ranging testimony yesterday. He sees a challenging period for the U.S. economy and upside risks for unemployment, though there have been signs of stability returning, including the cost of credit. He said that the fiscal position is unsustainable unless trimmed in the future and noted the strong, independent Fed will unwind is accommodative stance once the recovery is in place. Geithner reiterated strong dollar policy, was unsure that TARP monies would apply to states like California and emphasized that TARP was temporary though it could be extended.

The Financial Times also reported that Bank of America (BAC) wants to pay back $45 billion in TARP funds by the end of the year.

The Wall Street Journal reported that General Motors and the United Auto Workers reached a deal that will reduce the auto maker's $20 billion obligation to fund retiree medical obligations, the union announced. The agreement is a key element of GM's plans to restructure its balance sheet under close watch of the Obama administration as it heads toward an increasingly likely bankruptcy filling by June 1. The auto maker had been looking to cut a deal in which it would pay half, or about $10 billion, of its obligations to a retiree health-care trust in cash and give the union a 39% equity stake in the company. The deal still needs to be approved by GM's 60,000 UAW-represented workers, thousands of whom are facing layoffs as the auto maker slashes jobs.

The Wall Street Journal reported that GMAC will receive a $7 billion injection from the Treasury as half of a bailout package that could top $14 billion.

Former Fed Chairman Alan Greenspan signaled that the financial crisis has yet to end even as borrowing costs tumble, warning that U.S. banks must raise large amounts of money. "There is still a very large unfunded capital requirement in the commercial banking system in the United States and that's got to be funded," Greenspan said in an Bloomberg TV interview. He also said that "until the price of homes flattens out we still have a very serious potential mortgage crisis."

Treasury Secretary Geithner told lawmakers yesterday that banks have issued more than $56 billion in new stock or debt since the tests found 10 firms needed to raise about $75 billion.

Standard & Poor's Ratings cut its outlook on Britain to negative from stable, saying government debt could near 100% of GDP and citing uncertainty before a national election due by mid-2010. Reuters reported the agency affirmed Britain's 'AAA' long-term and 'A-1+' short-term sovereign credit ratings. However, its analysts said there was a one in three chance that the UK would be downgraded. It was the first time Britain had been on a negative outlook since S&P introduced them in the 1980s. Britain has had a "AAA" rating since 1978. Rival credit rating agencies Moody's and Fitch said they saw no reason to change the UK's status and reaffirmed its ratings.

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