Dow Plunges 387 on Credit Concerns
August 9, 2007 - 6:00pm
By TIM PARADIS
NEW YORK (AP) - Wall Street's deepening fears about a spreading credit crunch sent stocks plunging again Thursday,
with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points. The catalyst
for the market's latest skid: a French bank's announcement that it was freezing three funds that invested in U.S. subprime
The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems.
The idea that anyone _ institutions, investors, companies, individuals _ can't get money when they need it unnerved a stock
market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.
move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's
loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall
Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.
Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.
The concerns that
arose in Europe and spilled onto Wall Street underscored the potential worldwide ramifications of an implosion of some subprime
loans and perhaps also weakened arguments that strength in the global economy could help keep profit growth going in the U.S.
among large companies that do business overseas.
The ECB's injection of money into the system is an unprecedented move,
said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime
lending are, in fact, spreading into the general economy.
"This is a mini-panic," he said. "All the things that had
been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing
collapse is affecting the consumer."
Retailers released July sales figures Thursday that were overall disappointing.
Fed didn't soften its stance on inflation after leaving short-term interest rates unchanged Tuesday. However, the renewed
credit market concerns spurred bond traders who bet on its next move to predict that the Fed will cut rates at its meeting
next month. Before Thursday, traders had bet on a 1 in 4 chance of such a cut.
The Dow fell 387.18, or 2.83 percent,
Thursday's pullback continued an erratic pattern of triple-digit moves in the Dow since the index closed
at a record 14,001.41 on July 19. Eleven of the 15 ensuing sessions have ended in a triple-digit gain or loss. Gains have
been evaporating at the first mention of trouble in housing, subprime lending or the credit markets.
decline, the Dow is about 730 points, or 5.2 percent, below its record close. Some experts have been calling for a textbook
correction _ a pullback of at least 10 percent. At its lowest close since the market's high, Friday's finish of 13,181.91,
the Dow was 5.85 percent below the record.
Bonds rose sharply Thursday as investors again sought the relative safety
of Treasurys, pushing down the yield on the benchmark 10-year note to 4.79 percent from 4.89 percent late Wednesday.
broader Standard & Poor's 500 index fell 44.40, or 2.96 percent, to 1,453.09.
Before Thursday, the S&P had
its best three-day winning streak in nearly five years. But the latest pullback was the biggest point drop and percentage
loss for both the Dow and the S&P since a market decline on Feb. 27., that owed in part to concerns about subprime loans.
Nasdaq composite index fell 56.49, or 2.16 percent, to 2,556.49. On Wednesday, it posted its biggest point gain in more than
year. And while Thursday's loss was sharp, last Friday's was more severe.
Despite Thursday's slide, the major market
indexes are still up for the week, given that stocks rose sharply the first three sessions of the week.
came after a BNP Paribas unit said it was suspending three funds together worth about $3.79 billion and wouldn't make investor
redemptions until it could determine net asset values.
The funds invest in part in subprime mortgages through a process
known as securitization. Investment banks bundle together mortgages _ including those from subprime borrowers _ and sell them
off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking
the steady flow of income from homeowners making their mortgage payments.
"It just kind of brought the fear back,"
said Douglas Peta, market strategist at J.& W. Seligman in New York.
"In the last couple of days I think people
maybe thought that an all-clear had been sounded," he said referring to some of the subprime loan concerns.
highlights that there is not going to be an immediate resolution," he said of the companies that are trying to determine their
exposure to bad subprime loans.
Shares of financial companies, which investors have fled recently amid lending concerns,
took another beating Thursday. Citigroup Inc. fell 5 percent, as did fellow Dow component JPMorgan Chase & Co.
another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less
than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock,
said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $2.01, or 5.3 percent,
to $35.79, and was the worst performer of the 30 Dow components.
But American International Group Inc., one of the
world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending
market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday,
said it has enough cash and liquidity and "does not need to liquidate any investment securities in a chaotic market."
fell $2.18, or 3.3 percent, to $64.30, however.
The dollar was mixed against other major currencies, while gold prices
fell. Light, sweet crude fell 56 cents to $71.59 per barrel on the New York Mercantile Exchange.
Declining issues outnumbered
advancers by about 4 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 5.76 billion shares compared
with 5.3 billion shares traded Wednesday.
The Russell 2000 index of smaller companies fell 10.79, or 1.36 percent,
The Chicago Board Options Exchange's volatility index, often called the "fear index," rose Thursday to its
highest level since April 2003.
European stocks plunged. Britain's FTSE 100 lost 1.92 percent, Germany's DAX index
fell 2.00 percent, and France's CAC-40 fell 2.17 percent after being down more than 3 percent. Japan's Nikkei stock average
rose 0.83 percent. Hong Kong's Hang Seng index fell 0.43 percent.
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