Wall Street Wraps Up 2007 in a Somber Mood

NEW YORK (AP) -- Wall Street ended a painful year with another steep loss Monday as investors glumly anticipated that 2008 would bring more of the uncertainty and turbulence of 2007.

The Dow Jones industrials fell 101 points, the latest in a string of triple-digit moves that became commonplace in the just-ended year amid a continuum of bad news about housing, faltering mortgages and shrinking credit. Thanks to a big first-half advance, they managed to finish 2007 with a respectable increase of 6.43 percent -- not as large as the 16.29 percent jump in 2006, but a better performance than the modest loss in 2005.

The Dow's annual gain came even after it posted its worst fourth-quarter drop in 20 years, amid billion-dollar losses at the world's biggest financial firms and falling spending by consumers whose budgets have been crimped by record-high oil prices and declining home prices.

"Considering all that's going on, the market really acted pretty well," said Todd Leone, managing director of equity trading at Cowen & Co.

It's tough to say what the primary market driver of 2008 will be, but the stock market faces a slew of threats: more adjustable-rate mortgage resets, a still-tight credit market and the possibility of accelerating inflation. But Leone said the fourth-quarter earnings season in January should shed some light on how U.S. companies are surviving the recent slowdown and credit crunch.

There was more downbeat news on housing Monday. The National Association of Realtors said November existing home sales rose 0.4 percent to an annual rate of 5 million -- the first rise in nine months. However, sales are 20 percent below where they were a year ago, and the median existing home price has dropped 3.3 percent over the past 12 months.

Falling home prices have made it hard for struggling homeowners to refinance their mortgages, and the slump in construction activity has hurt homebuilders and other housing-related industries.

Still, there were some slivers of optimism Monday. The U.K.'s Observer newspaper reported Sunday that Merrill Lynch & Co. was in talks over the weekend to line up capital from investors in China and the Middle East in exchange for portions of the Wall Street firm.

Merrill, like many other financial houses, has seen its portfolio lose billions of dollar in value due to misplaced bets on mortgages. And as Citigroup Inc., UBS AG, Morgan Stanley and Bear Stearns Cos. have done, it has turned to investors in Asia for much-needed capital -- Merrill has already gotten $4.4 billion this month from a Singapore fund, which bought a 9.9 percent stake in the U.S. brokerage.

The Dow fell 101.05, or 0.76 percent, to 13,264.82. The blue-chip index remains below its Oct. 9 record high of 14,164.53, at which point it was up more than 13 percent year-to-date.

The Standard & Poor's 500 index and the technology-dominated Nasdaq composite index also declined Monday, but both posted annual gains for the fifth straight year.

The S&P 500 index fell 10.13, or 0.69 percent, to 1,468.36, to end 2007 with a gain of 3.53 percent. It had reached a record close of 1,565.15 on Oct. 9.

The Nasdaq fell 22.18, or 0.83 percent, to 2,652.28, to finish the year with a 9.81 percent gain. Despite the market's volatility, this was the best performance for the Nasdaq, still well below its tech boom highs, since 2003.

Government bonds rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slid to 4.03 percent from 4.12 percent late Friday, and is down nearly 17 percent for the year.

Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume came to a light 1.15 billion shares.

2007 was a remarkable year on Wall Street. The market began the year continuing the rally that propelled the Dow above 12,000 for the first time in October. Then, in late February, came a reminder that stocks were capable of turning tail and plunging -- a skid on China's stock market and an ominous economic outlook from former Federal Reserve Chairman Alan Greenspan sent the Dow down 416 points in one day.