WORLD> America
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WORLD> America
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Wall Street tumbles big, Americans worry about credit
(Agencies)
Updated: 2008-10-08 08:50 The credit markets did show some slight signs of easing as demand for safe-haven investments decreased, though that offered little comfort to investors highly anxious about the extremely low lending levels and their impact on the economy. The markets seized up last month after Lehman Brothers Holdings Inc. filed for bankruptcy and the government stepped in to rescue insurer American International Group Inc. The Fed's latest move to lubricate the credit markets stops short of a broad interest rate reduction that some investors say is necessary to restore confidence in the market. Other market watchers argue, however, that more focused steps like Fed's decision to buy commercial paper are what's needed. Investors remain worried about financial companies like Bank of America Corp., which fell after slashing its dividend and reporting that its third-quarter profit fell 68 percent. The stock fell $8.45, or 26 percent, to $23.77 Tuesday. It was by far the steepest decliner among the 30 stocks that comprise the Dow industrials. Investors are fearful that financial companies will continue to face cash shortages even with efforts in Washington and by other governments to resuscitate lending. "It's such a widespread loss of confidence and, to some extent, a race for the exits," Johnson said. Stocks ended lower for the fifth straight session. The Dow fell 508.39, or 5.11 percent, to 9,447.11. The drop came a day after the blue chips fell below 10,000 for the first time in four years. The Dow skidded as much as 800 points on Monday before finishing with a loss of 370. Broader indexes also fell. The S&P 500 index declined 60.66, or 5.74 percent, to 996.23, the first close below the 1,000 mark since September 2003. The Nasdaq composite index fell 108.08, or 5.80 percent, to 1,754.88. The dollar was mostly lower against other major currencies, while gold prices rose. Oil prices rebounded after plunging Monday to an eight-month low on concerns a global recession will undermine demand for crude. Light, sweet crude rose $2.25 to settle at $90.06 a barrel on the New York Mercantile Exchange. Concerns about the credit markets still fed demand for the relative safety of government debt, though pressures eased. The yield on the three-month Treasury bill, which moves opposite its price, rebounded to 0.81 percent from 0.50 percent late Monday. Demand for short-term Treasurys remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place. Some investors moved out of longer-term Treasury bonds, which don't draw as much demand as shorter-term debt in times of fear. The yield on the 10-year note rose to 3.51 percent from 3.45 percent late Monday. Investors are still hoping to see other moves from the Fed to boost confidence. Australia's central bank lowered interest rates by the largest amount since 1992 in a surprise move, and that reignited hopes that others, including the Fed and European Central Bank, might follow suit. Though not giving the market a rate cut, the Fed has taken other steps to help unclog the credit markets. On Tuesday, policymakers provided more details about when it will make $900 billion in short-term loans available to squeezed banks. The loans are made available to banks through auctions. The Fed, in coordination with other countries' central banks engaged in similar efforts, laid out dates that it will conduct the auctions through the rest of this year. But write-downs of bad debt at Bank of America are a reminder to investors that troubles within the financial sector remain, according to Kim Caughey, equity research analyst at Fort Pitt Capital Group. "I think we have weeks of volatility ahead of us," she said. "We're not overly optimistic but we're not indulging in doom and gloom either." She said the arrival of quarterly results from corporations has made investors even more jittery, with investors seeking any information about how companies are faring. She said some companies could go under because of the tough economic conditions but that the stronger players would survive. "You're going to get that Darwinian shakeout process. That's going to happen from the mom and pops all the way up to the big boys," she said. Minutes from the Fed's last meeting described a US economy that was slowing considerably and credit markets that were deteriorating rapidly. The meeting was held Sept. 16, the day after the failure of Lehman Brothers. The central bank's Open Market Committee found the risks from weaker growth and higher inflation were roughly equal; that was its rationale for leaving rates unchanged. Policymakers, who will meet again at the end of the month, left key interest rate unchanged at 2 percent. About 2,800 stocks declined on the New York Stock Exchange, while fewer than 400 advanced. Consolidated volume came to 6.84 billion shares, compared with 7.81 billion shares traded Monday. The Russell 2000 index of smaller companies fell 36.96, or 6.20 percent, to 558.95. Overseas, Japan's Nikkei stock average fell 3.03 percent. Britain's FTSE 100 rose 0.35 percent, Germany's DAX index fell 1.12 percent, and France's CAC-40 rose 0.55 percent. |
