The Wall Street Journal-20080131-Kraft- UBS- Yahoo Fall- Sears Rises

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Kraft, UBS, Yahoo Fall; Sears Rises

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Stocks fell as an initial burst of buying after the Federal Reserve's interest-rate cut wilted amid fears about the potential damage to banks such as Merrill Lynch, Citigroup and UBS from exposure to troubled bond insurers.

The turnaround was due to a combination of technical resistance and rising fears about downgrades for bond insurers, said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. Downgrades "would be devastating" for banks, Mr. Di Mattia said.

Fitch Ratings cut its credit ratings on one closely held bond guarantor, FGIC, a major player in municipal-bond insurance. Oppenheimer warned that credit-rating downgrades at major bond insurers could generate $40 billion in write-downs at banks in 2008. Oppenheimer said the write-downs would be concentrated at Merrill, which fell $1.38, or 2.4%, to $56.09; Citigroup, which shed three cents to 27.88; and UBS, which declined 79 cents, or 1.8%, to 42.26.

Usually, shares of banks and lenders lead "rate-cut rallies," because the more favorable borrowing rates allow them to turn a greater profit when lending out those borrowings. Not this time.

Even shares of Lehman Brothers Holdings, which increased its quarterly dividend in what some saw as a show of strength as its rivals seek capital to shore up balance sheets, gained six cents to 62.59.

Legg Mason rose 92 cents, or 1.3%, to 72.18. The money manager posted an increase in its fiscal third-quarter revenue as assets under management declined.

Another group that usually rises in the wake of rate cuts, home builders, also failed to find traction. Centex fell 2.60, or 9%, to 26.40 after the builder logged a wider third-quarter loss and forecast pressure on the housing market "for years to come." Toll Brothers fell 59 cents, or 2.6%, to 21.98.

Some consumer-discretionary stocks, which also benefit from lower borrowing rates, fared better. Tupperware Brands surged 5.19, or 18%, to 34.55 after the maker of plastic food containers posted brisk fourth-quarter earnings growth.

Sears Holdings (Nasdaq) rose 1.11, or 1.1%, to 105.07.

After enjoying a late 2007 rally, technology issues have faced bears' wrath in January. Yahoo fell 1.76, or 8.5%, to 19.05 on the Nasdaq as Wall Street cast a cold eye on its fourth-quarter earnings drop, worries about spending on online advertising and its plan to tighten its focus through job cuts. Brokerages cut ratings on the stock.

Altria tacked on 38 cents, or 0.5%, to 76.50 after the maker of Marlboro cigarettes confirmed it is spinning off its Philip Morris International unit.

Food companies are feeling the pinch from commodity inflation. Kellogg fell 51 cents, or 1%, to 49.11 as its fourth-quarter revenue exceeded Wall Street estimates, but it echoed chicken producer Pilgrim's Pride's complaints about the costs of grain. Pilgrim's Pride added 24 cents, or 1%, to 24.07.

Kraft Foods declined 74 cents, or 2.5%, to 29.45 after warning that increased dairy costs will force the cheese processor to raise prices. PepsiCo declined 1.24, or 1.8%, to 67.39.

Alliance Data Systems shed 30 cents, or 0.7%, to 42.70 after the credit-card and payment processor sued Blackstone Group, seeking to coerce the leveraged-buyout firm into completing its acquisition deal.

Baker Hughes fell 6.17, or 8.4%, to 67.27 after fourth-quarter results fell short of Wall Street's estimate. Merck & Co. fell 1.32, or 2.7%, to 46.69. The drug maker swung to a fourth-quarter loss on charges related to a proposed settlement of litigation related to its Vioxx painkiller drug.