Stocks Down Early Wednesday

Stocks slumped Wednesday as investors put back some IBM stock they grabbed a day earlier, when the major indexes closed at the highest point in over a year.

The Dow Jones industrial average (INDU) fell 156 points, or 1.5%, over an hour into the session. The S&P 500 index (SPX) lost 15 points, or 1.3%. The Nasdaq composite (COMP) gave back 38 points, or 1.7%.

Stocks rallied Tuesday, with IBM leading a tech charge ahead of its quarterly results, released after the close of trade. The Dow and the S&P 500 ended at fresh 15-month highs and the Nasdaq ended at a new 16-month high.

But the rally proved short lived, with stocks on the slide Wednesday.

IBM: The tech leader reported higher quarterly sales and earnings late Tuesday that topped estimates. But investors took a “sell the news” approach and sent shares nearly 4% lower Wednesday morning.

IBM (IBM, Fortune 500) said it earned $3.59 per share versus $3.28 a year earlier. Analysts surveyed by Thomson Reuters thought it would earn $3.47 per share. Sales inched up to $27.23 billion from $27 billion in the prior year versus forecasts for a drop to $26.96 billion.

Looking forward, IBM said it expects earnings per share of at least $11 for 2010.

Banking results: Dow component Bank of America (BAC, Fortune 500) said losses widened to $5.2 billion in the fourth quarter of last year, partly due to the bank paying back government bailout funds. BofA said the repayments shaved $4 billion off its bottom line.

The company was expected to post a loss of $3.9 billion, according to forecasts. On a per-share basis, BofA lost 60 cents versus forecasts for a loss of 52 cents. Shares were barely changed Wednesday morning.

Morgan Stanley (MS, Fortune 500) reported its second-straight quarterly profit, one year after posting a massive loss. The financial firm said it earned $617 million for the quarter versus a loss of $11 billion a year ago. The stock fell around 1%.

Wells Fargo (WFC, Fortune 500) reported a surprise profit of $2.82 billion, or 8 cents a share, versus forecasts for a small loss. The bank benefited from stronger fee income, even as it repaid $25 billion in bailout money.

Economy: Building permits, a measure of builder confidence, rose to a 653,000 unit annual rate in December from a 589,000 rate in November, the government reported. Permits were expected to rise to a 590,000 rate, according to a consensus of economists surveyed by

But housing starts fell to a 557,000 unit annual rate from a 580,000 unit rate in November. Economists thought starts would fall to a 572,000 unit rate.

The Producer Price Index (PPI), a measure of wholesale inflation, rose 0.2% in December after climbing 1.8% in the previous month. Economists thought it would hold steady. The so-called core PPI, which strips out volatile food and energy prices, was flat versus forecasts for a gain of 0.1%. Core PPI rose 0.5% in the prior month.

Health care: Investors were also assessing the surprise Republican election to the Massachusetts Senate seat previously held by the late Ted Kennedy.

The upset victor could kill health care reform by ending the Democrats’ filibuster-proof majority in the Senate. Additionally, House Democrats are mostly opposed to the idea of passing the Senate health care bill.

World markets: Asian markets ended lower and European markets fell in late trading.

Commodities and the dollar: The dollar gained versus the euro and the yen.

COMEX gold for February delivery fell $25.30 to $1,114.70 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.

U.S. light crude oil for February delivery fell $1.70 to $77.32 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.65% from 3.69% late Tuesday. Treasury prices and yields move in opposite directions.  To top of page

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