Friday, May 9, 2008

Wall Street set to stumble on AIG loss

By Jennifer Coogan

NEW YORK (Reuters) - Stock index futures fell on Friday, with financial stocks poised to decline after American International Group (AIG.N), the world's largest insurer, reported a larger-than-expected record loss. Equity markets overseas were pushed lower as the price of oil topped $125 a barrel. Tokyo's main index lost more than 2 percent and Europe's broad benchmark was down by nearly the same amount. Shares of AIG fell 8.3 percent to $40.50 before the opening bell. The company had to write down assets linked to subprime mortgages and said it would raise $12.5 billion to strengthen its balance sheet.

Another big financial company, Citigroup Inc (C.N) said it intends to shed roughly $400 billion of non-core assets in a bid to become more competitive. AIG "rekindles fears about the credit markets and that we're not through with the write-downs," said Jim Awad, chairman of W.P. Stewart Asset Management in New York. "On top of that, you've got Citi selling assets, which in the long run is a good thing, but it implies several more years of turmoil and restructuring."

S&P 500 futures were down 6.8 points, below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 81 points, and Nasdaq 100 futures slipped 8 points. Transportation and other energy-dependent stocks were likely to sag as U.S. crude for June delivery was up $1.55 to $125.24 a barrel after hitting a record of $125.98. Airlines particularly be under pressure after UBS cut its price target on shares of six major carriers. Semiconductor shares may lag after graphics chip maker Nvidia Corp (NVDA.O) posted quarterly earnings and gross margins that missed estimates. Nvidia shares were down 3 percent at $21.29 before the open. Stock futures showed a muted reaction to government data showing the U.S. trade deficit narrowed more than expected in March on a record plunge in the value of imports, underscoring the U.S. economic slowdown.

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