Stocks Fall on Hedge Fund Rumors

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Stocks ended lower on Tuesday as surging crude oil prices prompted Delta Air Lines Inc. to warn of possible bankruptcy and Wall Street ran wild with a rumor about potentially large hedge-fund losses.


The Dow Jones Industrial Average fell 103.23, or 1 percent, to close at 10,281.11. The Standard & Poor’s 500 Index was down 12.62, or 1.1 percent, to 1,166.22. The Nasdaq Composite Index lost 16.90, or 0.9 percent, to 1,962.77.


After rising as high as $53.10, a barrel of light crude for June delivery settled at $52.07, up 4 cents, on the New York Mercantile Exchange. The elevated price of oil prompted Delta to say in an SEC filing that it continues to face significant challenges due to historically high fuel prices and low ticket fares.


And analysts speculated that several global hedge funds had suffered losses from holdings in General Motors Corp.’ stock and its bonds, which were downgraded to “junk” status last week. The rumors were unsubstantiated, but were enough to make anxious investors sell.


Among local companies, shares of DreamWorks Animation SKG Inc. fell 5.2 percent to $36.50 on speculation that the Glendale-based digital animation film company would post lower-than-expected first-quarter earnings after the bell. After markets closed, the company reported a loss that was well below analysts’ earnings estimates of 58 cents per share on revenues of $175.2 million. The stock then plunged in after-hours trading, dropping more than 17 percent to around $30.26.


Diagnostic Products Corp. sank 12.7 percent to $44.50 after the L.A.-based maker of immunodiagnostic kits missed analysts’ earnings estimate of 61 cents per share on revenue of $119.3 million. The company reported net income of $16.1 million (54 cents per diluted share) for the first quarter ended March 31.


KB Home fell 2.2 percent to $57.80 after the L.A.-based homebuilder’s stock was downgraded to “buy” from “strong buy” by analyst Ivan Feinseth at Matrix USA.


And shares of Jacobs Engineering Group Inc. rose 1.5 percent to $53.24 after the Pasadena-based engineering firm announced that two of its subsidiaries were awarded contracts. One received a contract from RWE Thames Water to provide engineering services in support of the development of a new water resource for London and the surrounding Thames Water Region. Another received a contract for engineering and construction management of a new sulfur recovery unit for a BP refinery in Germany. Financial details were not disclosed for either contract.

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