Stocks kick off ’08 with a thud

NEW YORK — There was no new-year honeymoon for stock investors Wednesday as oil spiked to $100 a barrel and a weak manufacturing report fanned fresh concerns about a possible recession.

Gold soared above $850 an ounce for the first time in 28 years and Treasury bond yields dived as some investors ran for cover on the first trading day of 2008.

The Dow Jones industrial average skidded more than 200 points after a survey indicated a sharp and unexpected drop in manufacturing activity last month, a sign that housing-related woes were taking a toll on factory production.

“We got smacked with a strong left hook,” said Al Goldman, director of market analysis at A.G. Edwards. “People were nervous anyway and ready to jump, and they jumped to the negative side.”

The Dow ended down 220.86 points, or 1.7%, at 13,043.96. The blue-chip index had risen 6.4% in 2007. All but one of the Dow’s 30 stocks closed lower Wednesday.

The broader Standard & Poor’s 500 index slid 21.20 points, or 1.4%, to 1,447.16. That wiped out a significant chunk of the index’s meager 2007 gain of 3.5%.

The day’s sell-off was led by last year’s big loser: financial stocks. But the technology sector, a market leader last year, also was pounded.

The tech-heavy Nasdaq composite fell 42.65 points, or 1.6%, to 2,609.63. The Nasdaq index had risen 9.8% in 2007.

The Russell 2,000 index of smaller companies fell 12.48 points, or 1.6%, to 753.55.

Traders pay special attention to the market’s performance in the opening days of January because it often foreshadows how stocks will fare the rest of the year.

In the last dozen years, the S&P; 500’s showing in the first five trading days has signaled its annual performance nine times, according to the Stock Trader’s Almanac.

Monday was the worst opening-day loss in the S&P; 500 since 2001 and its sixth-worst showing since 1929, according to Standard & Poor’s Corp.

A positive note: Gains in the first five trading days of the year are a far more accurate indicator of annual performance than are declines during that period, according to the Stock Trader’s Almanac.

Traders barely had time to talk about the New Year’s Day football games before they were confronted with a report from the Institute for Supply Management, which said its manufacturing index, based on a survey of corporate purchasing managers, fell to 47.7 last month from 50.8 in November. A reading below 50 indicates that factory activity is contracting.

Though manufacturing growth slowed last year amid housing-related woes, the supply management index had stayed above 50 through November. Bulls had pointed to the sector’s continued expansion when arguing that the U.S. would avert a recession.

The sell-off was exacerbated by oil’s venture into triple-digit territory, which could worsen the drag on the economy from high energy prices. After trading briefly at a record $100, near-term crude futures in New York finished at $99.62 a barrel, up $3.64 from Monday.

The stock market temporarily pared its losses late in the session after the Federal Reserve released the minutes of the December meeting.

The Fed summary suggested that the central bank was prepared to keep lowering interest rates to combat the effects of housing-related woes on the broader economy.

But sellers took back control of the market in the final 90 minutes.

As stocks sank anew, money again poured into two of last year’s favorite hiding places: gold and Treasury bonds.

Near-term gold futures in New York zoomed $22.10 to $857 an ounce, nearing the record futures price of $873 set in January 1980. Gold jumped 31% last year.

Heavy buying of Treasury securities drove their yields down. The 10-year T-note yield ended at 3.91%, down from 4.03% on Monday.

Some observers weren’t worried by the manufacturing report.

The survey reflects long-standing weakness in the auto and housing sectors and doesn’t necessarily point to a broadening of those troubles to the entire economy, said Jeffrey Kleintop, chief market strategist at LPL Financial Services.

Stocks have historically fallen hard the first time the supply management index falls below 50, but they have sometimes shined afterward, Kleintop said.

For example, the index breached 50 in May 1995, but the S&P; 500 surged 25% in the following 12 months.

“It always spooks investors when it first happens, but it may turn out to be a buying opportunity if history is any guide,” Kleintop said.

Stocks fell Wednesday in part because of a growing expectation on Wall Street that monthly U.S. job numbers due Friday morning will come in on the light side, said Lou Crandall, economist at Wrightson ICAP, an economic research firm in Jersey City, NJ.

“With that on the horizon, it was a perfectly reasonable day to take your chips off the table,” Crandall said.

National City, Ohio’s largest bank, led declines in financial shares, dropping 87 cents, or 5.2%, to $15.59 after cutting its dividend by 49% to offset losses in the housing market.

PHH fell 54 cents to $17.10. A deal to sell the mortgage lender to Blackstone Group and GE Capital fell through because of a financing shortfall.

Among other financial stocks, Morgan Stanley fell $2.16, or 4.1%, to $50.95. Fannie Mae slumped $2.52, or 6.3%, to $37.46.

In the tech sector, an index of semiconductor stocks sank 3.7% after Bank of America trimmed its forecast for chip sales. Intel dropped $1.31, or 4.9%, to $25.35, while Advanced Micro Devices fell 36 cents, or 4.8%, to $7.14. National Semiconductor lost $1.23, or 5.4%, to $21.41 and LSI tumbled 43 cents, or 8.1%, to $4.88.

In other market highlights:

Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange.

Shares of department stores and discounters in the S&P; 500 lost 2.1%. The International Council of Shopping Centers said its weekly sales index slipped 0.2% for the week ended Saturday from the week before and was up 2.3% from a year earlier. The index is based on sales at stores opened at least a year.

Bed Bath & Beyond fell $1.03 to $28.36, a five-year low. J.C. Penney dropped $2.34 to $41.65. Amazon.com was the biggest gainer in the group, adding $3.61 to $96.25, after Citigroup predicted the online seller’s share of the market would grow.

Cheesecake Factory sank $1.67, or 7%, to $22.04. Brokerage Wedbush Morgan cut its rating on the stock to “hold” from “buy,” saying the company wasn’t aggressive enough in raising menu prices to boost earnings.

Shares of gold producers surged along with the metal itself. Newmont Mining gained $3.56, or 7.3%, to $52.39. Barrick Gold rose $3.97, or 9.4%, to $46.02.

FedEx slid $3.01, or 3.4%, to $86.16 after an analyst said tax and legal issues at its ground division and a sluggish economy would hurt the stock.

Overseas, key stock indexes slid 0.9% in Hong Kong, 0.6% in Britain, 1.5% in Germany and 1.1% in France.

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Hamilton reported from New York and Petruno from Los Angeles.