Stocks extend losses amid worries about automakers

NEW YORK (AP) -- Wall Street saw early selling pressure ease Friday following word from the Treasury Department that it would step in to prevent a collapse of the nation's Big Three automakers. Stocks came off their early lows but selling continued for a second session.

After falling more than 200 points at the open, the Dow Jones industrial average and other indicators began to pare their losses after White House and the Treasury said they were considering diverting money from the Wall Street rescue fund to stave off bankruptcy filings among the carmakers.

Stocks initially fell sharply Friday after the $14 billion rescue package for the automakers died in the Senate late Thursday after the United Auto Workers refused to meet Republican demands for big wage cuts.

Lawmakers have called on the Bush administration to use a portion of the $700 billion financial rescue to help the car companies.

General Motors Corp. and Chrysler LLC have said they could run out of cash within weeks without government help. Ford Motor Co., which would also be eligible for aid under the bill, has said it has enough cash to make it through next year.

"A lot of the gloom about the course of these automakers is pretty much discounted," said Ken Mayland, president of research firm ClearView Economics. "So yes there was no agreement last night, but that's not coming as a huge shock."

The failure of the bill is feeding investors' concerns about job losses. More evidence of the battered labor market came late Thursday, as Bank of America Corp. said it expected to cut as many as 35,000 jobs over the next three years, including some from investment bank Merrill Lynch & Co., which it agreed to buy in September.

The worries about Detroit's Big Three come alongside more bleak economic data that are adding to jitters about the economy. The Commerce Department said Friday that retail sales fell by 1.8 percent in November. Though slightly below the 1.9 percent slide that economists expected, the drop marks the fifth straight monthly decline - a period of weakness never before seen on the government's retail sales records. The weakness was led by a 2.8 percent drop in auto sales.

Adding to the day's downbeat news, the Labor Department said wholesale prices sank in November for the fourth straight month, raising deflation fears.

The Producer Price Index, which tracks costs of goods before they reach consumers, fell 2.2 percent last month - more than economists expected - as prices for gasoline and other energy prices retreated, the department said. That followed a record 2.8 percent drop in October.

In the first hour of trading, the Dow fell 108.40, or 1.27 percent, to 8,456.69. The Dow tumbled 196 points Thursday as worries intensified that the auto bill would stall in the Senate.

Broader stock indicators also fell. The Standard & Poor's 500 index declined 11.94, or 1.37 percent, to 861.65, and the Nasdaq composite index fell 5.42, or 0.36 percent, to 1,502.46.

Friday's economic reports underscored investors' growing fear of a severe and prolonged recession. The data followed the Labor Department's announcement Thursday that initial jobless claims rose to the highest level in 26 years last week.

Job losses have become investors' primary concern in recent weeks, as companies across many sectors, including AT&T Inc., DuPont, Dow Chemical Co., and Freeport-McMoRan Copper & Gold Inc., have announced thousands of layoffs. And analysts expect the announcements to keep coming.

If one of the automakers declared bankruptcy, some estimate as many as 3 million U.S. jobs could be lost next year.

GM fell 54 cents, or 13.1 percent, to $3.58, while Ford fell 7 cents, or 2.4 percent, to $2.83. Chrysler isn't publicly traded.

Bond prices rose Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.61 percent from 2.63 percent late Thursday. The yield on the three-month T-bill rose to 0.03 percent from 0.02 percent late Thursday. The bill has been in great demand because of the safety it offers investors.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $3.53 to $44.45 on the New York Mercantile Exchange.

Investors also grappled with further prospects of diminished confidence in Wall Street. Late Thursday, Bernard L. Madoff, a former Nasdaq stock market chairman was arrested on a securities fraud charge, accused of running a phony investment business that lost at least $50 billion and that he called a "giant Ponzi scheme," prosecutors said.

"It's not a happy day when you see a $50 billion fraud," said Ken Mayland, president of research firm ClearView Economics. "Things like that will just erode the public's confidence in the market, that it's either a rigged game ... or it's a crooked game."

Markets overseas plunged in response to the failed auto bailout bill. Meanwhile, British Prime Minister Gordon Brown said European Union leaders have agreed on a $267 billion economic stimulus package to rescue their recession-hit economies. Japanese Prime Minister Taro Aso also announced a new stimulus package to shore up his country's economy. The new package includes $111 billion in tax breaks and public financing and $144 billion to prop up financial markets.

Japan's Nikkei stock average fell 5.56 percent. In afternoon trading, Britain's FTSE 100 fell 3.58 percent, Germany's DAX index slid 2.37 percent, and France's CAC-40 declined 2.89 percent.