Stocks slip ahead of earnings reports

NEW YORK (AP) -- Wall Street extended last week's sell-off Monday as stocks declined ahead of quarterly earnings reports expected this week and as another drop in oil prices weighed on energy stocks.

Wall Street is expecting fourth-quarter and full-year numbers to be particularly bleak, especially after several companies warned last week that they are being hit hard by the recession. Aluminum producer Alcoa Inc., which last week announced it would slash production, fell again Monday after an analyst lowered his rating on the stock ahead of the company's planned earnings release after the closing bell.

Oil fell below $40 a barrel as investors worried that a weak economy will hurt demand. That weighed on energy stocks. Financial stocks also declined as investors looked to Citigroup and Morgan Stanley, which could announce as early as Monday a deal to combine their brokerages. The potential tie-up underscores the troubles with tattered balance sheets that many banks still face.

Investors are also digesting comments from General Motors that the company has presented a worst-case scenario to Congress in which it would need more money than the $13.4 billion allocated by the Treasury Department.

There are no economic reports scheduled Monday, but investors will likely be anxious ahead of the Federal Reserve's beige book, its assessment of the economy by region. The report, which will be released Wednesday, provides details about the strengths and weaknesses in each part of the country.

"It's to be expected that there will be some retrenchment," said Scott Armiger, portfolio manager at Christiana Bank & Trust. "Before Friday, the market was up 20 percent, and so you have to fully expect, OK this is not going to recover straight up. It's going to be jagged."

If the earnings results meet analysts' already low expectations, that could be a positive, Armiger said. But if results are worse than expected, that will add further downward pressure to the market.

In midmorning trading, the Dow Jones industrial average fell 57.35, or 0.67 percent, to 8,541.83.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 10.10, or 1.13 percent, to 880.25, and the Nasdaq composite index fell 15.21, or 0.97 percent, to 1,556.38.

The Russell 2000 index of smaller companies fell 4.96, or 1.03 percent, to 476.34.

Declining issues outpaced advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 197.3 million shares.

Wall Street is coming off of its worst week since November. The Dow Jones industrial average fell 4.8 percent for the week, the Standard & Poor's 500 index slid 4.5 percent and the Nasdaq composite index lost 3.7 percent.

On Friday, stocks faltered as the Labor Department's employment report showed the unemployment rate jumped to 7.2 percent from 6.8 percent in November, more than the 7 percent economists predicted.

Bond prices slipped Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.37 percent from 2.36 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.08 percent from 0.07 percent.

The dollar rose against other major currencies, while gold prices fell.

Light, sweet crude fell $2.61 to $38.22 on the New York Mercantile Exchange.

Wall Street is also looking to Washington ahead of President-elect Barack Obama's inauguration next week. Obama is pushing lawmakers to release the remaining $350 billion of the financial industry bailout funds. Several senators have predicted a vote in Congress is likely as early as this week. Investors are also awaiting more details of Obama's stimulus package, which includes big tax cuts and has an estimated price tag of nearly $800 billion.

Alcoa shares fell $1.03, or 9.5 percent, to $9.78. Among energy stocks, Occidental Petroleum Corp. fell $1.82, or 3.2 percent, to $54.48. Citigroup fell 52 cents, or 7.7 percent, to $6.23, while Morgan Stanley rose $1.28, or 6.7 percent, to $20.34.

Overseas, Britain's FTSE 100 fell 0.41 percent, Germany's DAX index fell 0.72 percent, and France's CAC-40 lost 1.68 percent. Hong Kong's Hang Seng index dropped 2.83 percent. Japan's market was closed for a national holiday.

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