US stocks falls further on Fannie, Freddie

NEW YORK -- Stocks fell on Friday after a brokerage's downgrades on Fannie Mae (FNM.N) and Freddie Mac (FRE.N), the two biggest U.S. home-funding companies, sparked a sell-off in financial shares.

Merrill Lynch cut its rating on shares of Fannie and Freddie to "sell" from "neutral," citing more deterioration in financial markets and credit conditions.

Stocks were reacting to the latest woes of financial services companies, which stem from defaults in the subprime mortgage market and led to tightening credit conditions.

"It's going to be hard to rally without them. They are a big part of the market," said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago. "They'll hold us back probably through the first half of the year. It doesn't look like the housing industry is turning around any time soon."

The Dow Jones industrial average (.DJI) dropped 57.23 points, or 0.47 percent, to 12,227.07. The Standard & Poor's 500 Index (.SPX) dropped 8.05 points, or 0.60 percent, to 1,334.48. The Nasdaq Composite Index (.IXIC) dropped 14.86 points, or 0.65 percent, to 2,284.92.

Fannie Mae shares were down 4.3 percent at $27.75 while Freddie Mac stock dropped 7.8 percent to $25.60. The S&P 500 financial index (.GSPF) was down 1.2 percent.

Shares of Intuit Inc (INTU.O) were the worst drag on the Nasdaq after the tax preparation software company posted lower quarterly profit late on Thursday, sending its shares down more than 10 percent to $26.74.

On the positive side, Express Scripts Inc (ESRX.O) was one of the top gainers on the S&P 500 after the pharmacy benefits manager raised its 2008 profit forecast due to favorable trends.

Express Scripts shares rose 3.9 percent to $67.31 on the Nasdaq.

(Agencies)