Dow Closes Down 126 Points After Goldman Fraud Charge

Stocks ended the week deeply in negative territory after the SEC charged Goldman Sachs with defrauding investors in its marketing and structuring of a CDO related to subprime mortgages.
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NEW YORK (

TheStreet

) -- The

Dow Jones Industrial Average

closed Friday's session with a triple-digit-loss after the

Securities and Exchange Commission's

fraud charges against

Goldman Sachs

(GS) - Get Report

triggered a broad sell-off.

The Dow lost 126 points, or 1.1%, to close at 11,019 but managed to end the week 0.2% higher. The

S&P 500

shed 20 points, or 1.6%, to close at 1192 and was down 0.2% on the week. The

Nasdaq

closed the session down by 34 points, or 1.4%, at 2481 but ended the week ahead by 1.1%.

Shares of Goldman Sachs lost $23.57, or 12.8%, to close at $160.70 on news that the SEC charged the firm and one of its vice presidents, Fabrice Tourre, with defrauding investors by omitting key facts in its structuring and marketing of a collateralized debt obligation known as ABACUS 2007-AC1 that was tied to the performance of subprime residential mortgage-backed securities.

According to the

SEC release, "Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO."

The news battered financials with

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and

American Express

(AXP) - Get Report

stocks putting the most pressure on the Dow.

"You'll have an overreaction and a lot of selling of financials in general," said Art Hogan, chief market strategist at Jeffries. "It appears we're going to have a 'shoot first, ask questions later' kind of trading for the next couple of days, until we figure out the magnitude of what's going on."

The news came on a day that saw markets struggling early in the session as investors weighed an influx of better-than-expected earnings reports (including one from

Bank of America ), strong housing starts and building permits against a much weaker-than-expected consumer sentiment reading in April.

"There's a real disconnect between Wall Street and Main Street," said California Credit Union League senior industry analyst Daniel Penrod before the Goldman news hit markets. "For Wall Street, crossing that 11,000 level was a big deal. There were a lot of people who felt that we needed to be trading above that range for growth to take hold. For Main Street, it's all about jobs. Hopefully with the market doing better, it'll have a trickle-down effect but I don't think anyone is ready to say that we're back. There are could still be some pitfalls."

Overseas, Hong Kong's Hang Seng lost 1.3%, and Japan's Nikkei shed 1.5%. The FTSE in London fell 1.4% while the DAX in Frankfurt was lost 1.8%.

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The Economy

The Census Bureau said March

housing starts rose 1.6% to 626,000, better than the 610,000 starts that were expected and exceeding the prior month's 1.1% growth. Building permits also increased by 7.5% to 685,000 from 637,000 permits in February. March's number was stronger than the 626,000 permits that economists had projected.

The University of Michigan's

Consumer Sentiment index failed to hit the 75-mark that economists had been hoping for in April. The index came in at 69.5, which was lower than March's reading 73.6.

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Company News

Financial and basic material sectors took the session's biggest hits. The NYSE Financial Index shed 2.8% and the KBW Bank Index fell 3.2%.

Citigroup

(C) - Get Report

shares fell 5.2%,

Morgan Stanley

(MS) - Get Report

lost 5.6% and

Wells Fargo

(WFC) - Get Report

fell 2.8%.

The Goldman news overshadowed the influx of promising earnings reports delivered to the market this morning.

"This week as set the bar pretty high," said Mike Shea, managing partner at Direct Access Partners, reviewing earnings releases. "If there was a goal set for earnings season -- not that we set goals for earnings season -- but if we're able to come out of this earnings season and not lose anything, that would be tremendous because that would justify the rally."

During the session, the Dow traded as low as 10,974 but managed to close above the psychologically-significant 11,000 level. The S&P, however, closed below its "bullish target" mark of 1200.

Coca-Cola

(KO) - Get Report

,

Verizon Communications

(VZ) - Get Report

and

Wal-Mart Stores

(WMT) - Get Report

were the Dow's best performers. Volume was heavy on the Dow, at 373.9 million shares, compared with an average of 200.4 million.

Shares of

Bank of America

(BAC) - Get Report

lost 5.5% after the bank surpassed analysts' expectations for a 9-cent gain in the first quarter with earnings of 28 cents a share. Bank of America also reported lower credit loss provisions, which came in at $9.8 million from $10.1 billion in the prior quarter.

General Electric

(GE) - Get Report

shares slipped 2.7% after it posted an adjusted profit of 21 cents a share, beating estimates by a nickel. Sales, however, lost 5% to $36.6 billion, which was below the $37.1 billion in sales projected by Wall Street.

Late Thursday,

Google

(GOOG) - Get Report

surpassed Wall Street's first-quarter expectations with a profit of $6.76 a share but its stock shed 7.6% because it

missed "whisper" numbers.

Tennessee bank

First Horizon National

(FHN) - Get Report

reported a first-quarter loss of 12 cents a share, which disappointed investors even though analysts had been expecting a loss of 16 cents a share. The stock lost 8.5%.

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Commodities and the Dollar

The most actively traded June crude oil contract lost $2.08, or 2.4%, to settle at $84.67 a barrel. The June

gold contract lopped off $23.40, or 2%, to settle at $1,136.90 an ounce.

The dollar was trading higher against a basket of currencies, with the

dollar index up by 0.4%.

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Treasuries

The benchmark 10-year Treasury strengthened 17/32, diluting the yield to 3.770%.

The two-year note rose 4/32, weakening the yield to 0.959%. The 30-year bond gained 23/32, dropping the yield to 4.673%.

--Written by Melinda Peer in New York

.

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