Stocks fall following spike in gold prices

March 13, 2008 6:59:18 AM PDT
Stocks pulled back early Thursday as investors grappled with further declines in the dollar, a spike in oil and gold prices and as the investment fund Carlyle Capital appeared close to collapse. The major indexes each lost more than 1 percent, with the Dow Jones industrial average falling nearly 200 points. Investors were also getting their first look at prepared remarks by Treasury Secretary Henry Paulson who is calling for stronger regulatory oversight of mortgage lenders, whose lax lending standards are blamed for touching off the latest stagnation in the credit markets.

Adding to investors' unease about the state of the economy, the government said retail sales fell by a worse-than-expected 0.6 percent in February, rather than rising 0.2 percent as Wall Street had expected.

The spike in gold prices - hitting $1,000 an ounce for the first time in electronic trading Thursday, according to Dow Jones Newswires - underscores investors' nervousness as investing in the precious metal is often regarded as a defensive move. Gold prices recently changed hands up $16.20 at $996.70 an ounce.

The developments weighed on already weaker stock market futures contracts that were lower amid a further decline in the dollar.

Carlyle Capital Corp., which is managed by Carlyle Group, warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. World markets shuddered last week after the Amsterdam-listed fund missed margin calls from banks on its $21.7 billion portfolio of residential-mortgage-backed bonds.

Carlyle's troubles have added to concern that billions of dollars of depressed mortgage-backed securities will flood the market, reducing their value even further.

In the first minutes of trading, the Dow Jones industrial average fell 192.78, or 1.59 percent, to 11,917.46.

Broader stock indicators also fell. The Standard & Poor's 500 index lost 21.84, or 1.67 percent, to 1,286.93, and the Nasdaq composite index fell 31.42, or 1.40 percent, to 2,212.45.

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