Oil Rise , Again After Iran Missle Test

Most U.S. Stocks Retreat, Led by Financials, Technology Shares

By Eric Martin

July 9 (Bloomberg) -- Most U.S. stocks declined after Fannie Mae's borrowing costs climbed, analysts said a slowing economy may hurt sales at technology companies and oil prices rose for the first time this week.

Freddie Mac and Fannie Mae, the largest sources of financing for U.S. home loans, posted the steepest declines in the Standard & Poor's 500 Index after Fannie sold $3 billion in notes at higher yields than in past offerings. Cisco Systems Inc. tumbled as UBS AG said the world's biggest maker of computer-networking equipment faces a slowdown in the U.S. and Europe. Continental Airlines Inc. and Wal-Mart Stores Inc. fell as crude advanced. Alcoa Inc. climbed, limiting the market's retreat, after posting earnings that topped estimates.

Eight stocks fell for every seven that gained on the New York Stock Exchange. The Standard & Poor's 500 Index added 1.53 points, or 0.1 percent, to 1,275.23 at 10:31 a.m. in New York. The Dow Jones Industrial Average declined 4.95 to 11,379.24. The Nasdaq Composite Index lost 4.26 to 2,290.18.

``The bottom line is that we are in an environment where there is a high degree of uncertainty,'' said Ian Harnett, an equity strategist at Absolute Strategy Research in London. The high oil price means ``there is a lot of risk out there.''

Profits at S&P 500 companies are forecast to decline 11 percent on average in the second quarter, according to the average estimate of analysts surveyed by Bloomberg. Income is projected to slump 60 percent on average at financial companies.

Global stock markets have erased more than $11 trillion this year as record oil prices and more than $400 billion in credit- related losses threatened to push the U.S., the world's largest economy, into recession.

Fannie, Freddie Slump

Fannie Mae slipped $1.17, or 6.6 percent, to $16.45. Freddie Mac lost $1.04, or 7.7 percent, to $12.42. Fannie's 3.25 percent notes, which mature Aug. 12, 2010, priced to yield 3.27 percent, or 74 basis points more than comparable U.S. Treasuries. Fannie last month sold $4 billion of 3 percent benchmark notes maturing July 12, 2010, that priced to yield 3.036 percent, or 65 basis points more than U.S. Treasuries of similar maturity. A basis point is 0.01 percentage point.

Fannie and Freddie, which are rated Aaa by the world's largest credit-rating companies, are being treated by derivatives traders as if they are rated five levels lower. Credit-default swaps tied to $1.45 trillion of debt sold by the two are trading at levels that imply the bonds should be rated A2 by Moody's Investors Service, according to data compiled by the firm's credit strategy group.

Bank of America Corp., the second-biggest U.S. bank by market value, lost 18 cents to $23.36. Regions Financial Corp., Alabama's biggest bank, declined 29 cents to $10.66.

Dividend Concern

Credit Suisse Group AG lowered its share-price forecasts for the banks and said as many as 40 percent of the top 50 U.S. regional lenders may be forced to cut their dividends or raise ``more expensive and dilutive forms of capital over the next few quarters.''

Cisco Systems declined 62 cents, or 2.7 percent, to $22.26. The world's biggest maker of computer-networking equipment may say fourth-quarter revenue was ``flat to down'' from the third quarter, according to UBS AG.

``Enterprise spending remains challenging and there has been further slowing in the U.S., especially in the West Coast region,'' New York-based UBS analyst Nikos Theodosopoulos wrote in a report today. ``We also see Europe slowing from last quarter.''

Intel lost 45 cents, or 2.2 percent, to $20.47. The world's biggest maker of computer chips may fail to beat earnings estimates in the second half as some customers curb spending and Advanced Micro Devices Inc. introduces new products, Merrill said.

Oil Climbs

Continental dropped 60 cents, or 5.9 percent, to $9.64. Wal- Mart, the biggest retailer, tumbled 97 cents to $58.14.

Crude oil for August delivery rose $1.28, or 0.9 percent, to $137.32 a barrel in New York. Futures tumbled 6.4 percent the past two days, the biggest two-session decline since March 19 and 20. Prices are still up 90 percent from a year ago.

Alcoa, the first company in the Dow to report second-quarter results, climbed $1.26 to $33.59. The company's profit excluding certain items of 71 cents a share, topping the 65-cent average estimate of 17 analysts in a Bloomberg survey.

Mattson Technology Inc. fell 41 cents to $4.51. The provider of equipment used to make semiconductors said its second-quarter loss was wider than it predicted because of ``protracted weakness'' in the chip market.

Mohawk Industries Inc. sank 78 cents to $64.12. The U.S. carpet and tile maker said second-quarter earnings may be $1.23 to $1.26 a share, compared with a previous forecast of $1.36 to $1.45, as the housing market deteriorates.

U.S. shares rallied yesterday, sending the S&P 500 to its steepest advance in a month. Banks and transportation companies led gains after JPMorgan Chase & Co.'s chief executive officer said the credit crisis will ease and oil posted its biggest drop since March.