Subprime fears kill rally; Dow off 146

Wall Street resumed its downward skid Tuesday, falling sharply as renewed concerns about soured home loans blew away what had looked like a solid recovery rally. The Dow Jones industrials lost nearly 150 points, while investors seeking safety moved into bonds.

Early in the session, stocks had soared following strong earnings from General Motors Corp. and Sun Microsystems Inc. and amid somewhat mixed economic data. But the market pulled back after American Home Mortgage Investment Corp. said Tuesday afternoon it hasn’t been able to tap into its credit lines and has hired advisers to consider its options, including the sale of its assets.

Wall Street has been concerned about credit after some loans made to borrowers with poor credit have gone bad, and that anxiety contributed to the market’s big plunge last week. Tuesday’s trading showed how vulnerable the market remains, and how any advance can quickly evaporate.

“Anything that argues for higher (interest) rates and worsening credit conditions will be something that takes the air out of the market,” said Denis Amato, chief investment officer at Ancora Advisors. He said the market’s short-lived advance was in part made possible by a temporary easing of credit fears.

The Dow fell 146.32, or 1.10 percent, to 13,211.99 after being up as much as 140 points during the session. The move lower undid a nearly 93 point gain the blue chips saw Monday in a partial rebound from the 585 points they lost over the course of Thursday and Friday.

Broader stock indicators fell. The Standard & Poor’s 500 index fell 18.64, or 1.26 percent, to 1,455.27, and the Nasdaq composite index fell 37.01, or 1.43 percent, to 2,546.27.

Bond prices, which move opposite yields, rose as investors quickly fled stocks. The 10-year Treasury note’s yield fell to 4.74 percent from 4.81 percent late Monday.

Oil prices closed above $78 a barrel for the first time on the New York Mercantile Exchange, advancing $1.38 to $78.21.

The was mixed against other major currencies. Gold prices closed higher on the New York Mercantile Exchange.

“Everyone is walking on pins and needles and with the gains that were behind everybody I think they’re a little more susceptible to the bad news,” Amato said, referring to the tenuous nature of the session’s early rally.

The initial gains came after a mixed batch of economic reports. The Commerce Department’s year-over-year core personal consumption expenditures — a closely watched inflation measure — rose 1.9 percent in June, within the Federal Reserve’s comfort zone. The report also showed that personal spending last month inched up 0.1 percent, its slowest pace in nine months.

And while a report from the Conference Board indicated that consumer confidence jumped to a six-year high, June construction spending dipped and the July Chicago purchasing manager’s index indicated weaker-than-expected growth. The report is considered a precursor to the Institute for Supply Management’s national manufacturing index, which will be released Wednesday.

Declining issues outnumbered advancers on the New York Stock Exchange, where volume came to 2.21 billion shares compared with 2.03 billion traded Monday.

The Russell 2000 index of smaller companies fell 8.16, or 1.04 percent, to 776.07.

In Asian trading, Japan’s Nikkei stock average fell 0.23 percent, Hong Kong’s Hang Seng index jumped 1.96 percent, and China’s Shanghai Composite Index rose 0.7 percent to a new record.

In European trading, Britain’s FTSE 100 rose 2.48 percent, Germany’s DAX index advanced 1.71 percent, and France’s CAC-40 rose 1.85 percent.