Stocks in U.S. Drift to the Downside

Stocks have given up early gains to trade in negative territory as investors sort through a slew of economic data.
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Updated from 2:28 p.m. EST

Stocks on Wall Street remained in negative territory at the approach of Tuesday's closing bell as investors digested more dim economic data on day two of a holiday-shortened trading week.

The

Dow Jones Industrial Average

was recently down 89 points at 8431, and the

S&P 500

was losing 7 points at 865. The

Nasdaq

was off 10 points at 1521.

The latest batch of economic data proved less than encouraging. Real

gross domestic product

fell at an annual rate of 0.5% in the third quarter, the federal government said, following a 2.8% increase in the second quarter.

The decline in GDP, a measure of the output of goods and services produced by labor and property located in the U.S., reflected negative contributions from personal consumption expenditures, residential fixed investment and equipment and software.

Two closely watched figures, existing-home sales and new-homes sales for November were released Tuesday midmorning. New-home sales fell to 407,000 from 433,000, according to the Commerce Department, while expectations were for 415,000. Existing-home sales also fell more than expected, declining to 4.49 million from 4.98 million according to the National Association of Realtors, compared to the 4.93 million consensus.

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"The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," said Lawrence Yun, NAR chief economist. "We hope the home sales impact from the stock market crash turns out to be short-lived, as was the case in 1987 and 2001," he said.

Total housing inventory at the end of November rose 0.1% to 4.2 million existing homes available for sale, representing an 11.2-month supply at the current sales pace, up from a 10.3-month supply in October, according to the NAR.

The seasonally adjusted estimate of

new

houses for sale at the end of November was 374,000, a supply of 11.5 months at the current sales rate, according to the Commerce Department. This level is significantly below the peak in June of 2006 and is approaching normal, writes Tony Crescenzi, chief bond market strategist for Miller Tabak, on his

RealMoney.com blog

.

The problem is in existing-home inventory, says Crescenzi. "It lags, but it's next: the under-building of homes relative to population growth will inevitably result in the filling up of those homes, whether through sale or rental -- humans need shelter."

One bright spot in Tuesday's figures, the University of Michigan consumer sentiment index, rose to 60.1 from 59.1, compared to a predicted fall to 58.8.

Later in the week, mortgage application data, the

Washington Post

and

ABC News

consumer comfort index, personal income data and initial jobless claims, retail sales and durable goods data will be released.

In corporate news, commercial lender

CIT Group

(CIT) - Get Report

said Tuesday that the federal government will officially invest $2.33 billion in a preferred equity stake, now that it's received approval from the

Federal Reserve

to become a

bank holding company

.

By receiving bank-holding status, financial institutions such as

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

have gained access to the Fed's discount window and other government programs, including Troubled Assets Relief Program, or TARP.

American Express

(AXP) - Get Report

said Tuesday it received preliminary approval from the Treasury Department to obtain $3.39 billion in TARP capital in exchange for preferred stock and warrants to purchase shares of common stock.

Last week, Treasury Secretary Henry Paulson argued that Congress should now release the

second half of the $700 billion TARP fund

, which was set up in October to bail out struggling financial institutions.

Elsewhere, on Tuesday, Standard & Poor's and Moody's lowered credit ratings for automakers late Monday. Moody's downgraded the Corporate Family rating of

Ford

(F) - Get Report

to Caa3 from Caa1, and lowered the senior unsecured rating of

Ford Motor Credit

, the captive finance arm of Ford Motor, to Caa1 from B3. Meanwhile, S&P lowered the corporate credit rating on

Chrysler

to CC from CCC+.

The downgrades come a week after President Bush said the U.S. government would extend

$13.4 billion in loans to automakers

GM and Chrysler in December and January through the Troubled Asset Relief Program, with another $4 billion available in February.

Domestic automakers receiving government aid have been charged with the task of showing financial viability by the end of March. They're not the only ones struggling, however. On Monday,

Toyota

said it expects to post its first annual operating loss and will barely break even for the year through March, due to the economic downturn and slowing sales in the U.S.

Longer-dated U.S. Treasury securities were recently mixed. The 10-year was up 1.5/32 to yield 2.2%, and the 30-year was down 15/32, yielding 2.6%. The dollar was weaker against the euro, and stronger against the pound and yen.

In commodities,

oil

fell 93 cents to settle at $38.98 a barrel, after rising above $40 earlier in the day. Prices have continued to decline, despite an announcement from oil-exporting cartel OPEC last week that it will cut its production target by another 2.2 million barrels a day starting in January.

Gold fell $9.10 to settle at $838.10 an ounce.

Overseas, European exchanges such as the FTSE in London and the DAX in Frankfurt were little changed. In Asia, Japan's Nikkei was closed for the day, while Hong Kong's Hang Seng ended with losses.

Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. AP contributed to this report.