U.S. Stocks Snap Two-day Winning Streak, Hit By Financials

By Kate Gibson

U.S. stocks on Tuesday thudded lower after two days of gains as the financial sector was hit by more evidence of ongoing credit-related trouble, with the damage partially offset by crude's retreat to $113 a barrel.

"How this story plays out really depends on whether the weakness in financials bleeds out to other sectors in the economy," said Linda Duessel, equity strategist at Federated Investors.

Twenty-three of the Dow Jones Industrial Average's (DJI) 30 components chalked up losses, with the declines led by financials, including J.P. Morgan Chase & Co. (JPM), off 9.5%, and American International Group Inc. (AIG), down 6.6%. The blue-chip index shed 139.88 points to close at 11,642.47.

General Motors Corp. (GM) fronted blue-chip gains, with shares of the automaker gaining 3.2%.

The S&P 500 (SPX) declined 15.72 points to 1,289.59, with financials also fronting declines among the index's 10 industry groups, off 4.5%, followed by utilities, down 2.1%.

Materials and consumer staples were the only gaining sectors on the S&P, with materials up 0.2% and consumer stables edging fractionally higher.

After short-lived forays in positive turf, the Nasdaq Composite (RIXF) lapsed into the red, falling 9.34 points to finish at 2,430.61.

LATIN AMERICAN MARKETS: Brazilian Shares Lose Grip On Gains

By Carla Mozee

Major Latin American equity markets finished lower Tuesday, weighed by declines in commodity prices and a downturn on Wall Street as financial sector fears continued to build.

Brazil's Bovespa fell 0.4% to 54,502.97, losing earlier gains. The benchmark index tumbled 3.3% on Monday as commodity prices slumped.

Shares of state-run oil giant Petroleo Brasileiro (PBR) managed to hold onto gains and finished up 0.9% on the heels of the company's report of its all-time highest quarterly profit. The company on Monday posted a 29% jump in second- quarter profit to 8.78 billion reals ($5.4 billion) from 6.8 billion reals, bolstered by higher fuel prices and output for crude and natural gas. Revenue climbed 30% to 54.6 billion reals.

"We expect Petrobras results to improve even further in the third quarter 2008 due to elevation in price of gasoline and diesel in Brazil as of May, besides expectation of production growth," wrote à gora oil and petrochemical analyst Luiz Otávio Broad in a note.

Petrobras shares moved off their highs of the session as crude-oil futures fell to their lowest level in more than three months, below $113 a barrel, pressured as Russia ordered an end to military operations in Georgia as well as by concerns over a deceleration in global oil demand.

Citigroup analysts Geoffrey Dennis and Jason Press on Tuesday said that a modest deceleration in global growth "could continue to exert some downward pressure on commodity prices, including for oil, but one that does not create an outright negative environment for equity markets.

UPDATE: Oil Fundamentals Ease As High Prices Cut Demand: IEA

By Moming Zhou

NEW YORK (Dow Jones) - The International Energy Agency said Tuesday that tight global oil demand and supply balance, which has helped push up crude prices to record highs, is easing as higher prices and slower economic growth in developed countries curbs oil demand.

Global oil demand for this year is expected to stand at 86.9 million barrels a day, unchanged from the previous month's forecasts, the IEA said in an August monthly report. Oil supplies, on the other hand, are expected to remain strong. The world produced 87.8 million barrels of oil in July, up 890,000 barrels from the previous month, the IEA said.

"The slowdown in demand related to the general economic downturn and high oil prices is becoming increasingly evident," the IEA said in the report. "Consumers clearly are reacting by a change in [driving] behavior."

Easing fundamentals have pushed oil prices about $30 dollars a barrel, or 20%, lower than their record high above $147 hit in early July. Crude was trading around $114 a barrel on the New York Mercantile Exchange on Tuesday.

The IEA, however, also cautioned against "complacency", as "it looks too early to cite definitively a sea change in the market."

BOND REPORT: Treasurys Gain As Credit Concerns Resurface

By Deborah Levine

Treasury prices gained ground Tuesday, pushing yields to the lowest in nearly a month, as losses at UBS and write-offs at J.P. Morgan Chase raised speculation that the credit crisis that started a year ago has yet to bottom.

Ten-year note yields (UST10Y) fell seven basis points, or 0.07%, to 3.93%, the lowest since July 15. Bond prices and yields move in opposite directions.

"There's clearly a little more concern in the markets as far as weakness in the economy, and financials are driving that," said Mario De Rose, fixed-income strategist at Edward Jones. "That's causing weakness in stocks, and bonds are the alternative."

Beleaguered Swiss bank UBS (UBS) reported a second-quarter loss of 358 million francs ($331 million) and said it would restructure by separating its investment-banking and wealth-management arms after nervous clients withdrew more cash. The latest loss included about $5.1 billion of further write-downs, offset in part by a sizable tax credit.

J.P. Morgan (JPM) had to take a $1.5 billion write-off on mortgage-backed securities and loans, the company said in a Securities and Exchange Commission filing late Monday.

"UBS' dire outlook for credit markets in the second half of 2008 along with J.P. Morgan's write-downs ... underpinned the Treasury bid," Roseanne Briggen, Treasury analyst at Informa Global Markets, wrote in an email.

ASIA MARKETS: Shanghai Extends Fall, Mumbai Snaps Five-day Rally

Asian markets mostly declined Tuesday, with steelmakers such as Nippon Steel Corp. and Posco dropping on sliding commodity prices to outweigh gains in airline and automobile stocks such as Cathay Pacific Airways and Honda Motor Co.

The region was marked by choppy trading, which saw most indexes swerve between positive and negative territories.

Shanghai-listed stocks turned volatile, not much enthused by data, which showed consumer price index-based inflation for July rose at a slower-than- expected rate of 6.3% from the year-earlier month, in contrast to a surge in producer prices released Monday.

"The [CPI inflation] number by itself is marginally positive, but it's not completely safe in terms of China's inflation, because the producer price index is definitely picking up," said Peter Pak, vice president at BOCI Research in Hong Kong. "It may have some effect [on consumer prices] several months later."

He was referring to China's PPI data released Monday, which showed wholesale inflation accelerated at a decade-high rate of 10% in July from the same month a year-ago.

The Shanghai Composite, which fell more than 9% in the two previous sessions, ended 0.5% lower at 2,475.20, after dropping as low as 2,430.85 earlier in the day. The benchmark index, which nearly doubled last year, has given up all its gains from 2007 and then some in 2008, tallying losses of more than 53% in the year to date.