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 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.
Other media reports, which said Lehman Brothers was seeking cash infusions to help bolster its balance sheet, also kept the financial sector in focus 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 warned. 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 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 2.0 percent amid economic uncertainty and concerns about inflation.
Most economists expect existing home sales to tick up to a seasonally adjusted annualised rate of 4.90 million properties in July after sales slipped 2.6 percent to 4.86 million in the prior month. Existing home sales have fallen over 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. The oil markets will also likely remain in the spotlight, especially after Fed chairman Ben Bernanke reiterated the Fed's belief Friday that inflationary pressures will likely cool in coming months amid lacklustre economic growth.
A key-New York oil futures contract slumped 6.59 dollars to close at 114.59 dollars a barrel Friday compared with a day earlier. Prices are still relatively high, but have tumbled sharply from record peaks over 147 dollars last month.
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