Stocks open lower after weekly employment reading

Thursday, October 2nd 2008, 9:32 am
By: News 9

Associated Press

NEW YORK  -- Stocks are down in early trading after the government reported that the number of people seeking unemployment benefits rose last week. Investors are viewing the increase as evidence that the economy continues to weaken due to the credit crisis.

The Labor Department's report that initial claims for unemployment benefits rose by 1,000 last week to a seasonally adjusted 497,000 unnerved investors worried about not only about strains in the financial market but the effect on the broader economy.

Analysts had been expecting unemployment claims would fall to 475,000; instead, the level of jobless claims is the highest seen since the immediate aftermath of the Sept. 11, 2001, terrorist attacks.

The well-being of the labor market is a key concern for investors as rising unemployment could further dent consumer spending, which accounts for more than two-thirds of U.S. economic activity.

While the figures reflect about 45,000 claims from Texas and Louisiana following the landfall last month of Hurricanes Ike and Gustav, the increase nonetheless unnerved investors worried that the economy is suffering while Washington tries to underpin the financial system with a government bailout.

The House is expected to vote on a revised plan as soon as Friday after rejecting an earlier version on Monday. The Senate approved the latest version by a wide margin late Wednesday.

Following the unemployment report, the credit markets showed some increased strain and stock futures extended their declines. The yield on the 3-month T-bill, the safest type of investment, fell to 0.78 percent from 0.79 percent late Wednesday. The historically low yields indicate investors are willing to accept the smallest of returns to safeguard their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.71 percent from 3.74 percent late Wednesday.

Dow Jones industrial average futures, which already down before the report, fell 103, or 0.95 percent, to 10,784. Standard & Poor's 500 index futures fell 13.00, or 1.11 percent, to 1,155.40. Nasdaq 100 index futures fell 19.25, or 1.22 percent, to 1,559.50.

Wall Street also tried to determine what might come of the government's rescue package, which is supported by President Bush and leaders of both parties. The version of the bill that the Senate passed in a 74-25 vote late Wednesday added $100 billion in tax breaks for businesses and the middle class. It also raised the limit on federal deposit insurance to $250,000 from $100,000.

Supporters are hoping that the sweetened bill will be more palatable to some of the 133 House Republicans who rejected the measure in a vote Monday that took Wall Street, and many on Capitol Hill, by surprise.

Those in favor of the plan to let the government buy billions of dollars in bad mortgage debt and other now-toxic assets say it will help unclog the world's ailing credit markets. Banks are fearful of making loans, even to each other, because of worries they won't recoup their money. That, in turn, is weighing on the economy, making borrowing more difficult and expensive for businesses and consumers alike.

The dollar was higher against other major currencies, particularly the euro, even after the European Central Bank left interest rates unchanged. Higher interest rates in Europe generally make the euro more attractive to investors than the dollar.

Light, sweet crude fell $2.14 to $96.39 a barrel in premarket electronic trading on the New York Mercantile Exchange.

Beyond the events in Washington, investors were awaiting a report on demand at the nation's factories. Wall Street expects that factory orders fell by 2.5 percent in August, according to the consensus of economists surveyed by Thomson/IFR.

The Commerce Department report is due at 10 a.m. EDT.

Wall Street also found some room for optimism after Swiss bank UBS said Thursday it expects to turn a "a small profit" in the third quarter after a string of losses. The forecast from the company, which has taken billions of dollars in mortgage-related write-downs, stirred hopes that some banks' troubles could be on the mend.

Overseas, Japan's Nikkei stock average fell 1.88 percent. In afternoon trading, Britain's FTSE 100 rose 0.75 percent, Germany's DAX index rose 0.11 percent, and France's CAC-40 advanced 0.45 percent.