Futures slide as credit woes fan global rout

Futures slide as credit woes fan global rout
Fri Aug 10, 2007 8:14 AM EDT146
By Ellis Mnyandu

NEW YORK (Reuters) - Stock index futures signaled a further decline on Wall Street on Friday as concerns about the widening fallout from losses stemming from U.S. subprime mortgages fueled the flight from global equity markets.

Even as major central banks moved to calm jittery markets by injecting additional liquidity into the financial system, stocks headed lower across Asia and in Europe, boosting the safe-haven allure of government bonds.

"The overall sense here is that it's not time to get in the market, particularly in the financials, and catch a falling knife until we see how broad and deep this credit crunch gets," said Art Hogan, chief market analyst with Jefferies & Co. in Boston.

"The futures look pretty soft, and I think a lot of that is being driven by news that came out of Countrywide (Financial Corp.), talking about the spread or the contagion of this credit tightening."

S&P 500 futures <SPc1> were down 20.6 points, below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures <DJc1> -- which at one point were down 200 points -- were off 170 points, and Nasdaq 100 <NDc1> futures shed 22.50 points.

Analysts say tighter credit conditions would hurt corporate takeovers and share buybacks, two forces behind the market's advance to record levels before the recent turbulence. In addition, it could worsen the housing downturn, threatening the broader economy.

On Thursday, U.S. stocks suffered their second worst decline of the year, with the Dow Jones industrial average <.DJI> sinking nearly 400 points, or 2.83 percent, while the Standard & Poor's 500 Index <.SPX> slid almost 3 percent.

After Thursday's close, signs of further mortgage market turmoil emerged from a regulatory filing from the nation's largest mortgage lender, Countrywide Financial,(CFC.N: Quote), which said it faces "unprecedented disruptions" in the debt market and the secondary market for mortgages.

Separately, Washington Mutual (WM.N: Quote), the largest U.S. savings and loan, said in a regulatory filing that liquidity in the market for less-than-prime home loans and securities backed by the loans has "diminished significantly."

Before Friday's opening bell, Countrywide shares dropped 17 percent to $23.79 in electronic trade. Shares of Washington Mutual slid 7.2 percent to $34.10 in electronic trade.

Shares of banks and brokers also appeared set for a further pounding, with shares of Goldman Sachs Group Inc (GS.N: Quote) down 3.4 percent at $176, before the bell.