Stocks Plunge With Dollar;
Dow Down 360 By Tim Paradis,
AP Business Writer
Wednesday November 7, 7:06 pm ET
Stocks Fall Sharply As Dollar Sinks to Fresh
Lows, Credit Concerns Grow, Financial Stocks Drop.
NEW YORK (AP) -- Wall Street suffered its
second big drop in a week Wednesday, with investors worried
about spreading fallout from the credit crisis at banks and
about a dollar that just keeps getting weaker. The Dow Jones
industrial average fell more than 360 points -- just about
matching its pullback of last Thursday.
A passel of worries tormented investors,
including comments by New York Attorney General Andrew Cuomo
about conflicts of interest in the mortgage industry that
exacerbated declines among bank stocks.
Meanwhile, the dollar swooned amid speculation that China
will seek to diversify some of its foreign currency stockpiles
beyond the greenback and General Motors Corp. further dampened
sentiment by posting a record loss tied to an accounting adjustment.
Oil hit a record, rising above $98 per barrel before retreating,
and gold pushed higher, moves exacerbated by an anemic dollar.
The fear with a huge drop like Wednesday's is whether it
is part not just of a correction, which is a 10 percent pullback
in stock prices, but that it could be the beginning of a bear
market. With the huge volatility that has swept Wall Street
since the summer, and triple-digit moves in the Dow becoming
commonplace, no one can be sure.
Still, the concern on the Street is that the extent of the
fallout from the credit market crisis that has led to billions
of dollars in losses for major banks and investment firms
is not yet known. With Citigroup Inc. announcing Sunday it
needed to take an additional $8 billion to $11 billion in
writedowns, investors are very uneasy not just about stocks,
but the economy as a whole.
"The financials are the bodyguards of the market and
when the bodyguards are taking shots then the market can't
do well," said David Darst, chief investment strategist
for Morgan Stanley's global wealth management group.
"A lot of the bad stuff is known; what the markets are
worrying about is the unknown," Darst said.
The Dow fell 360.92, or 2.64 percent, to 13,300.02. The Dow,
which had gained 117 points on Tuesday, had fallen 362.14
last Thursday, reflecting the extreme fractiousness on Wall
Street these days. It was the third time in a month the blue
chip index has dropped by more than 350 points, and leaves
the Dow up 6.71 percent for the year.
Broader stock indicators also pulled back Wednesday. The
Standard & Poor's 500 index fell 44.65, or 2.94 percent,
to 1,475.62 -- moving below the 1,500 benchmark. The Nasdaq
composite index fell 76.42, or 2.70 percent, to 2,748.76.
For the year, the S&P 500 is up 4.04 percent, while the
Nasdaq is up 13.81 percent.
The Russell 2000 index of smaller companies fell 25.81, or
3.22 percent, to 775.96.
A drop in the NYSE composite index proved steep enough to
trigger trading curbs, which puts restrictions on certain
kinds of sell orders and are meant to help stabilize the market.
Government bonds jumped as investors transferred money from
stocks to fixed-income investments. The yield on the 10-year
Treasury note, which moves opposite its price, fell to 4.34
percent from 4.37 percent late Tuesday. It was down to 4.30
percent in after-hours trading.
The pullback among the financials made clear the urgency
of some investors' concerns about balance sheets.
Washington Mutual Inc. fell after Cuomo stepped up claims
that the bank shares blame for inflated home prices nationwide.
The bank, which also warned it expects loan defaults to continue
in the first quarter at the same pace as in the present quarter,
fell $4.19, or 17.3 percent, to $20.04.
Cuomo issued subpoenas to government-sponsored lenders Fannie
Mae and Freddie Mac as part of his inquiry into what he regards
as conflicts of interest in the mortgage industry. Fannie
Mae fell $5.60, or 10.1 percent, to $49.79, while Freddie
Mac fell $4.26, or 8.6 percent, to $45.13.
In addition, American International Group fell $4.15, or
6.7 percent, to $57.90 ahead of a quarterly financial report
due after the closing bell.
Other financial names fell as well. American Express Co.
fell $3.20, or 5.5 percent, to $55.37. Citigroup, which like
AIG and American Express is among the 30 stocks that make
up the Dow industrials, fell $1.67, or 4.8 percent, to $33.41.
Morgan Stanley fell $3.32, or 6.1 percent, to $51.19.
Illustrating investors' unease, the Chicago Board Options
Exchange's volatility index, known as the VIX, and often referred
to as the "fear index," spiked, jumping nearly 24
The 13-nation euro hit a fresh record against the dollar
-- rising to $1.4729 -- before falling back. The dollar lost
ground following word that a senior Chinese political figure
said China should spread its $1.43 trillion foreign exchange
reserves beyond the dollar into the euro and other strong
The euro's rally put it well above the $1.4554 the currency
bought late Tuesday in New York. The previous record high,
also set Tuesday, was $1.4571.
The weak dollar helped keep pressure on the price of oil
during much of the session. Light, sweet crude fell 33 cents
to settle at $96.37 per barrel on the New York Mercantile
Exchange after the goverment reported inventories fell less
than expected last week while refinery utilization remained
December gold rose but also came off its highs, adding $10.10
to settle at $833.50 an ounce on the Nymex.
Comments from Federal Reserve officials didn't give investors
much reason to reconsider their bets. St. Louis Fed President
William Poole said recent weeks have seen the credit markets
make clear progress in returning to normal but said the Fed
might have to make other rate cuts. Such a move would likely
hasten the dollar's fall as investors would seek better interest
rates elsewhere. The central bank reduced the federal funds
rate in September and again last month.
Corporate news likewise was depressing. GM reported a $39
billion loss for the third quarter due to an accounting shift.
The company booked a $38.6 billion noncash charge largely
related to establishing a valuation allowance, which is taken
when the future benefit of deferred tax assets is less likely
to be realized.
GM's loss came to $68.85 per share, compared with a loss
of $147 million, or 26 cents per share, in the third quarter
last year. The stock fell $2.21, or 6.1 percent, to $33.95.
Declining issues outnumbered advancers by about 10 to 1 on
the New York Stock Exchange, where consolidated volume came
to 4.22 billion shares, compared with 3.77 billion shares
Overseas, Japan's Nikkei stock average closed down 0.94 percent.
Britain's FTSE 100 fell 0.85 percent, Germany's DAX index
fell 0.35 percent, and France's CAC-40 fell 0.46 percent.