US stocks lost momentum in the past week as financial woes continued to weigh down Wall Street with investors looking ahead to a busy week of economic news.
Investors sustained fresh losses in the past week as renewed speculation swirled about the financial health of mortgage-finance giants Fannie Mae and Freddie Mac, which prop up a substantial part of the ailing US mortgage market.
The US Treasury said it was keeping an eye on the firms’ operations as some media reports suggested the government could be poised to offer substantial financial assistance to the two companies.
PHOTO: BLOOMBERG
Other media reports that said Lehman Brothers was seeking cash infusions to help bolster its balance sheet also kept the financial sector in focus on Friday.
The Dow Jones Industrial Average of 30 blue-chip stocks closed down 0.27 percent at 11,628.06 in the week to Friday, while the technology-heavy NASDAQ composite index dipped 1.55 percent to 2,414.71.
The broad-market Standard & Poor’s 500 index lost 0.46 percent to 1,292.20.
“With Fan and Fred on the brink of a Treasury bailout, crucial support to the mortgage market will be sorely tested,” said Sal Guatieri, an economist at BMO Capital Markets.
The financial sector is likely to remain in focus in the coming week after more banks reached agreements with regulators in recent days to buy back stressed auction rate securities marketed to investors before the credit crunch worsened in February.
Regulators have said their probes are continuing and analysts expect more banks to sign repurchase agreements in coming weeks.
Auction rate securities, essentially debt instruments issued by financial firms, municipalities and student loan companies, typically have a fairly lengthy maturity. But the interest rates on such securities can change at auctions run by the banks.
The repurchase agreements could further strain banks’ finances, however.
“The ensnared banks, in turn, are asking larger players in the market to redeem their long-term borrowings, which could trigger further sales of asset-backed securities. This means credit is about to get even costlier and tighter,” Guatieri said.
While the markets were mostly focused on the financial arena in the past week, several economic reports will likely grab significant attention in coming days.
Investors will receive fresh updates on the state of the housing market, consumer spending and income, consumer sentiment and a second estimate for second-quarter growth.
The US Federal Reserve is also due to release the minutes from its interest rate policy meeting earlier this month when the central bank opted to keep its key interest rate unchanged at 2 percent amid economic uncertainty and concerns about inflation.
Most economists expect existing home sales to tick up to a seasonally adjusted annualized rate of 4.9 million properties last month after sales slipped 2.6 percent to 4.86 million in the previous month.
Existing home sales have fallen more than 15 percent in the past year, underlining the continuing decline in the housing market.
“Healing in the housing market might still be a few quarters away, time that Fannie and Freddie and possibly several others in the financial industry probably don’t have,” analysts at RBC Capital Markets said in a briefing note.
Bond prices ended the week to Friday mixed. The yield on the 10-year Treasury bond rose to 3.867 percent from 3.852 percent a week earlier, while that on the 30-year bond dropped to 4.463 percent from 4.473 percent.
Bond yields and prices move in opposite directions.
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