The benchmark Nikkei average .N225 rose 2.0 percent to 8,741.24 in early trade on Wednesday, after the U.S. Federal Reserve slashed borrowing costs to a record low the previous day.
The broader Topix index .TOPX climbed 1.9 percent to 844.77. (Reporting by Rika Otsuka)
Showing posts with label World Market Watch. Show all posts
Showing posts with label World Market Watch. Show all posts
Wednesday, December 17, 2008
US Stocks surge as Fed pledges broad economic support
A surprised Wall Street bolted higher Tuesday after the Federal Reserve's historic decision to further slash interest rates and provide broad support to revive the troubled economy.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
Demand for long-term government bonds increased and pushed yields to record lows.
The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."
"What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy."
The Fed's unprecedented move to lower its fed funds target rate to a range of zero to 0.25 percent rather than a fixed point was a surprise. The move is an acknowledgment that rates in the marketplace had been well below the Fed's 1 percent target, which it set at its previous meeting on Oct. 29. The central bank also cut the lending rate for loans directly to banks.
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
"In some senses the whole point of this meeting was to say 'Quit watching interest rates, watch the other things that we can and will do,'" said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policy makers did not want to bring the rate all the way to zero. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The Dow rose 359.61, or 4.20 percent, to 8,924.14 after having been up about 100 in subdued trading ahead of the Fed's announcement.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.
The Russell 2000 index of smaller companies rose 30.28, or 6.69 percent, to 482.85.
The number of stocks advancing outnumbered those declining by 5-to-1 on the New York Stock Exchange, where consolidated volume came to 5.81 billion shares, up from 4.37 billion on Monday.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday.
The yield on the three-month T-bill -- whose yield has at times gone negative due to frenzied buying -- was at 0.02, flat with late Monday.
The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.
Light, sweet crude fell 91 cents to settle at $43.60 a barrel on the New York Mercantile Exchange.
Battered financial stocks led the market's advance. Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter. But investors were apparently relieved that the loss wasn't wider and sent the stock up $9.54, or 14 percent, to $76.
Other financial names jumped. JPMorgan Chase & Co. rose $3.72, or 13 percent, to $32.35, while Wells Fargo & Co. gained $3.71, or 14 percent, to $29.78.
For the gains in stocks to hold, McDonald said the credit markets need to show signs that fear is dissipating.
"The credit markets now need to show some improvement," he said.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
The rate decision came on a day when investors received two more pieces of evidence on Tuesday that the economy was worsening: The Commerce Department reported a 18.9 percent drop in new home construction in November, while the Labor Department said consumer prices sank by 1.7 percent.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the recent string of downbeat economic readings could eventually convince Wall Street that the economy has hit a bottom and could be poised for a modest recovery. In past downturns, the data remain weak long after the economy has began to recover.
"The idea is it's so bad that maybe it doesn't take much to go up from here," he said.
Wall Street remained nervous about the growing list of firms and individual investors affected by investment manager Bernard Madoff, who is accused of scamming investors.
Madoff, former chairman of the Nasdaq stock market, was arrested Thursday in what the Securities and Exchange Commission is calling one of the biggest Ponzi schemes on record. Investors of all sizes -- from major banks to small charities -- may record losses of more than $50 billion. Firms invested in his fund include such major European banks as HSBC Holdings PLC, Banco Santander, BNP Paribas, and Royal Bank of Scotland Group PLC.
Markets overseas were mixed. Japan's Nikkei stock average fell 1.12 percent, while Hong Kong's Hang Seng index rose 0.55 percent. Britain's FTSE 100 rose 0.74 percent, Germany's DAX index rose 1.61 percent, and France's CAC-40 rose 2.07 percent.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
Demand for long-term government bonds increased and pushed yields to record lows.
The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."
"What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy."
The Fed's unprecedented move to lower its fed funds target rate to a range of zero to 0.25 percent rather than a fixed point was a surprise. The move is an acknowledgment that rates in the marketplace had been well below the Fed's 1 percent target, which it set at its previous meeting on Oct. 29. The central bank also cut the lending rate for loans directly to banks.
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
"In some senses the whole point of this meeting was to say 'Quit watching interest rates, watch the other things that we can and will do,'" said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policy makers did not want to bring the rate all the way to zero. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The Dow rose 359.61, or 4.20 percent, to 8,924.14 after having been up about 100 in subdued trading ahead of the Fed's announcement.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.
The Russell 2000 index of smaller companies rose 30.28, or 6.69 percent, to 482.85.
The number of stocks advancing outnumbered those declining by 5-to-1 on the New York Stock Exchange, where consolidated volume came to 5.81 billion shares, up from 4.37 billion on Monday.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday.
The yield on the three-month T-bill -- whose yield has at times gone negative due to frenzied buying -- was at 0.02, flat with late Monday.
The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.
Light, sweet crude fell 91 cents to settle at $43.60 a barrel on the New York Mercantile Exchange.
Battered financial stocks led the market's advance. Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter. But investors were apparently relieved that the loss wasn't wider and sent the stock up $9.54, or 14 percent, to $76.
Other financial names jumped. JPMorgan Chase & Co. rose $3.72, or 13 percent, to $32.35, while Wells Fargo & Co. gained $3.71, or 14 percent, to $29.78.
For the gains in stocks to hold, McDonald said the credit markets need to show signs that fear is dissipating.
"The credit markets now need to show some improvement," he said.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
The rate decision came on a day when investors received two more pieces of evidence on Tuesday that the economy was worsening: The Commerce Department reported a 18.9 percent drop in new home construction in November, while the Labor Department said consumer prices sank by 1.7 percent.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the recent string of downbeat economic readings could eventually convince Wall Street that the economy has hit a bottom and could be poised for a modest recovery. In past downturns, the data remain weak long after the economy has began to recover.
"The idea is it's so bad that maybe it doesn't take much to go up from here," he said.
Wall Street remained nervous about the growing list of firms and individual investors affected by investment manager Bernard Madoff, who is accused of scamming investors.
Madoff, former chairman of the Nasdaq stock market, was arrested Thursday in what the Securities and Exchange Commission is calling one of the biggest Ponzi schemes on record. Investors of all sizes -- from major banks to small charities -- may record losses of more than $50 billion. Firms invested in his fund include such major European banks as HSBC Holdings PLC, Banco Santander, BNP Paribas, and Royal Bank of Scotland Group PLC.
Markets overseas were mixed. Japan's Nikkei stock average fell 1.12 percent, while Hong Kong's Hang Seng index rose 0.55 percent. Britain's FTSE 100 rose 0.74 percent, Germany's DAX index rose 1.61 percent, and France's CAC-40 rose 2.07 percent.
Friday, October 31, 2008
Ugly October ends with an upbeat day on Wall St
U.S. stocks ended one of their worst months on record, but signs of further thawing in credit markets lifted battered shares on Friday.
Hammered by worries over the extent of the damage the credit crunch has inflicted on the global economy, the Dow Jones industrial average logged its biggest monthly decline in a decade, while the S&P 500 had its worst month since the October 1987 market crash.
Financial shares, led by a gain of almost 10 percent in JPMorgan Chase, lifted Wall Street as the interest rate that banks charge each other for short-term loans continued to ease.
The decrease in overnight interbank borrowing costs prompted hopes that global efforts to bolster confidence in credit markets are taking hold following the Federal Reserve's interest-rate cut earlier this week and spurred investors to search for bargains.
"It seems like you have some continued mild improvement in the credit markets and that seems to be buoying hopes but people should know, conditions may have improved, but they're improving slowly," said Chip Hanlon, president of Delta Global Advisors Inc, in Huntington Beach, California.
The Dow Jones industrial average gained 144.32 points, or 1.57 percent, to 9,325.01. The Standard & Poor's 500 Index rose 14.66 points, or 1.54 percent, to 968.75. The Nasdaq Composite Index climbed 22.43 points, or 1.32 percent, to 1,720.95.
Friday's rally resulted in stocks clocking in a higher finish for two sessions in a row -- the first consecutive gains in over a month.
For the week, the Dow gained 11.3 percent, its best one-week percentage gain since October 1974. The S&P 500 rose 10.5 percent, its best weekly percentage gain since at least January 1980. The Nasdaq advanced 10.9 percent, its best weekly percentage gain since April 2001.
October, though, was a different story. The Dow lost 14.06 percent, its worst one-month percentage drop since August 1998, while the S&P 500 lost 16.83 percent, its worst one-month percentage slide since October 1987.
Pension funds bought stocks to rebalance their portfolios, also lending support to the market, traders noted.
JPMorgan said it is making changes to about $110 billion in mortgages and is temporarily halting foreclosures while it alters the loans. The bank's stock, a Dow component, shot up 9.7 percent, or $3.63, to $41.25 on the New York Stock Exchange.
Among other financial shares, Morgan Stanley rose 8.6 percent to $17.47., while the S&P Financial Index gained 5.5 percent.
But economic data on Friday that showed U.S. consumers are tightening their belts offered more evidence of a deep slowdown, though the market appeared to shrug it off.
U.S. consumers cut their monthly spending for the first time in two years during September, according to a U.S. Commerce Department report.
On Nasdaq, video game publisher Electronic Arts Inc shed 17.9 percent to $22.78 after it chopped its full-year profit forecast due to slowing demand.
After trading on both the up and down side of Friday's ledger, Chevron Corp ended up 0.6 percent at $74.60 on the NYSE after it reported quarterly profit that beat expectations. The price of oil, which had slipped earlier and pressured the stock, also rebounded. U.S. crude gained $1.85 to settle at $67.81 a barrel on the New York Mercantile Exchange, but recorded its biggest monthly drop ever. In October, the price of NYMEX crude fell a record 32.62 percent.
Shares of Express Scripts Inc jumped 5.3 percent to $60.61 on Nasdaq after the pharmacy benefit manager reported quarterly profit that beat expectations after Thursday's closing bell.
In other economic news, an index of consumer sentiment suffered its steepest monthly drop on record, according to the Reuters/University of Michigan Surveys of Consumers' final reading for October.
And the Chicago Purchasing Management Index showed that business activity in the Midwest came to a halt in October as production and new orders plummeted.
Trading was moderate on the New York Stock Exchange, with about 1.57 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.50 billion shares traded, above last year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on both the NYSE and the Nasdaq by a ratio of nearly 3 to 1.
Hammered by worries over the extent of the damage the credit crunch has inflicted on the global economy, the Dow Jones industrial average logged its biggest monthly decline in a decade, while the S&P 500 had its worst month since the October 1987 market crash.
Financial shares, led by a gain of almost 10 percent in JPMorgan Chase, lifted Wall Street as the interest rate that banks charge each other for short-term loans continued to ease.
The decrease in overnight interbank borrowing costs prompted hopes that global efforts to bolster confidence in credit markets are taking hold following the Federal Reserve's interest-rate cut earlier this week and spurred investors to search for bargains.
"It seems like you have some continued mild improvement in the credit markets and that seems to be buoying hopes but people should know, conditions may have improved, but they're improving slowly," said Chip Hanlon, president of Delta Global Advisors Inc, in Huntington Beach, California.
The Dow Jones industrial average gained 144.32 points, or 1.57 percent, to 9,325.01. The Standard & Poor's 500 Index rose 14.66 points, or 1.54 percent, to 968.75. The Nasdaq Composite Index climbed 22.43 points, or 1.32 percent, to 1,720.95.
Friday's rally resulted in stocks clocking in a higher finish for two sessions in a row -- the first consecutive gains in over a month.
For the week, the Dow gained 11.3 percent, its best one-week percentage gain since October 1974. The S&P 500 rose 10.5 percent, its best weekly percentage gain since at least January 1980. The Nasdaq advanced 10.9 percent, its best weekly percentage gain since April 2001.
October, though, was a different story. The Dow lost 14.06 percent, its worst one-month percentage drop since August 1998, while the S&P 500 lost 16.83 percent, its worst one-month percentage slide since October 1987.
Pension funds bought stocks to rebalance their portfolios, also lending support to the market, traders noted.
JPMorgan said it is making changes to about $110 billion in mortgages and is temporarily halting foreclosures while it alters the loans. The bank's stock, a Dow component, shot up 9.7 percent, or $3.63, to $41.25 on the New York Stock Exchange.
Among other financial shares, Morgan Stanley rose 8.6 percent to $17.47., while the S&P Financial Index gained 5.5 percent.
But economic data on Friday that showed U.S. consumers are tightening their belts offered more evidence of a deep slowdown, though the market appeared to shrug it off.
U.S. consumers cut their monthly spending for the first time in two years during September, according to a U.S. Commerce Department report.
On Nasdaq, video game publisher Electronic Arts Inc shed 17.9 percent to $22.78 after it chopped its full-year profit forecast due to slowing demand.
After trading on both the up and down side of Friday's ledger, Chevron Corp ended up 0.6 percent at $74.60 on the NYSE after it reported quarterly profit that beat expectations. The price of oil, which had slipped earlier and pressured the stock, also rebounded. U.S. crude gained $1.85 to settle at $67.81 a barrel on the New York Mercantile Exchange, but recorded its biggest monthly drop ever. In October, the price of NYMEX crude fell a record 32.62 percent.
Shares of Express Scripts Inc jumped 5.3 percent to $60.61 on Nasdaq after the pharmacy benefit manager reported quarterly profit that beat expectations after Thursday's closing bell.
In other economic news, an index of consumer sentiment suffered its steepest monthly drop on record, according to the Reuters/University of Michigan Surveys of Consumers' final reading for October.
And the Chicago Purchasing Management Index showed that business activity in the Midwest came to a halt in October as production and new orders plummeted.
Trading was moderate on the New York Stock Exchange, with about 1.57 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.50 billion shares traded, above last year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on both the NYSE and the Nasdaq by a ratio of nearly 3 to 1.
Wednesday, October 29, 2008
US STOCKS-Profit-taking likely to lead to flat open
* Investors pause after Tuesday's surge, before Fed
* Federal Reserve expected to cut interest rates
* Signs of thawing credit markets offer positive spur
* Energy stocks up on higher oil price; airlines drop (Recasts first paragraph, adds details, update prices)
By Ellis Mnyandu
NEW YORK, Oct 29 (Reuters) - U.S. stocks headed for flat open on Wednesday as profit-taking and concerns about rising oil prices offset optimism about a possible interest-rate cut and signs of a thaw in credit markets.
A day after after Wall Street roared to its second-best advance ever, investors paused to gauge if the market would continue to bounce back from its lowest levels in more than five years.
Tuesday's surge on Wall Street helped fuel an advance in other stock markets, with Asia up sharply overnight, and European benchmark indexes up about 5 percent on Wednesday.
There remain worries about the severity of a global recession, said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey. In addition, higher oil prices looked set also to give investors pause, with U.S. crude up 6 percent at $66.53 a barrel
"We are going to see some profit taking and people will wait for the Fed news. Yesterday's move was driven by expectations that the Fed will do something," he said.
"At the same time, yesterday's rally may make some people to pause and ask if this isn't the time to actually get out. That mind-set is still out there."
S&P 500 futures SPc1 edged up 0.3 point and were about even with fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Dow Jones industrial average futures DJc1 fell 29 points, and Nasdaq 100 NDc1 futures shed 6.75 points.
The Federal Reserve is widely expected to cut its benchmark fed funds rate by at least 50 basis points from the current 1.5 percent. Its decision is expected around 2:15 p.m. (1815 GMT).
"What the Fed says on the economic outlook, I think is what's going to dictate the market's next move," added Bakhos.
Energy shares, including Exxon Mobil Corp (XOM.N: Quote, Profile, Research) , were expected to rise with oil prices. But higher energy costs also were likely to create headwinds for retailers and airlines, with Delta shares (DAL.N: Quote, Profile, Research) off 3.3 percent at $7.89 before the bell.
U.S. stock futures had briefly added to gains before the open on a government report that showed a surprise increase in new orders for long-lasting manufactured goods in September.
* Federal Reserve expected to cut interest rates
* Signs of thawing credit markets offer positive spur
* Energy stocks up on higher oil price; airlines drop (Recasts first paragraph, adds details, update prices)
By Ellis Mnyandu
NEW YORK, Oct 29 (Reuters) - U.S. stocks headed for flat open on Wednesday as profit-taking and concerns about rising oil prices offset optimism about a possible interest-rate cut and signs of a thaw in credit markets.
A day after after Wall Street roared to its second-best advance ever, investors paused to gauge if the market would continue to bounce back from its lowest levels in more than five years.
Tuesday's surge on Wall Street helped fuel an advance in other stock markets, with Asia up sharply overnight, and European benchmark indexes up about 5 percent on Wednesday.
There remain worries about the severity of a global recession, said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey. In addition, higher oil prices looked set also to give investors pause, with U.S. crude up 6 percent at $66.53 a barrel
"We are going to see some profit taking and people will wait for the Fed news. Yesterday's move was driven by expectations that the Fed will do something," he said.
"At the same time, yesterday's rally may make some people to pause and ask if this isn't the time to actually get out. That mind-set is still out there."
S&P 500 futures SPc1 edged up 0.3 point and were about even with fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Dow Jones industrial average futures DJc1 fell 29 points, and Nasdaq 100 NDc1 futures shed 6.75 points.
The Federal Reserve is widely expected to cut its benchmark fed funds rate by at least 50 basis points from the current 1.5 percent. Its decision is expected around 2:15 p.m. (1815 GMT).
"What the Fed says on the economic outlook, I think is what's going to dictate the market's next move," added Bakhos.
Energy shares, including Exxon Mobil Corp (XOM.N: Quote, Profile, Research) , were expected to rise with oil prices. But higher energy costs also were likely to create headwinds for retailers and airlines, with Delta shares (DAL.N: Quote, Profile, Research) off 3.3 percent at $7.89 before the bell.
U.S. stock futures had briefly added to gains before the open on a government report that showed a surprise increase in new orders for long-lasting manufactured goods in September.
Wall St scores 2nd-best day ever on rate-cut hopes
NEW YORK (Reuters) - Wall Street marked its second-best day ever on Tuesday as investors, convinced that central banks worldwide will cut rates even more, scooped up stocks that had been driven down to their lowest prices in more than five years.
A big catalyst for the late-day surge was a huge drop in the Japanese yen after a news report that the Bank of Japan may cut interest rates later this week. A sudden strengthening of the yen during the past week had been destabilizing stock markets around the world, and Tuesday's reversal of that trend was greeted with relief by investors.
The Federal Reserve is expected to cut its benchmark fed funds rate by at least 50 basis points on Wednesday when it concludes a two-day meeting that began this afternoon.
Shares of capital-hungry companies such as telecoms posted the day's sharpest gains, including Verizon Communications, up over 14 percent, and AT&T, up over 13 percent.
Big oil companies gave the Dow its biggest boost after British major BP Plc reported a record quarterly profit, beating expectations. Exxon Mobil and Chevron both rose more than 13 percent.
Shares of Boeing jumped 15.5 percent to $48.91 after the aircraft manufacturer reached a tentative agreement with its largest union to end a strike and stop revenue losses estimated at $100 million a day.
Typically when the market gets to oversold extremes, stocks see a bounce back, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
"If you believe that governments around the world are going to be successful in reengerizing financial markets and gradually bringing back confidence and stability in the weeks and months ahead, then you probably want to be more of a buyer than a seller," Sheldon said.
The Dow Jones industrial average jumped 889.35 points, or 10.88 percent, to 9,065.12. The Standard & Poor's 500 Index surged 91.59 points, or 10.79 percent, to 940.51. The Nasdaq Composite Index ran up 143.57 points, or 9.53 percent, to 1,649.47.
It was the second-biggest point gain ever for the Dow and the S&P. These advances were surpassed only by the rally on Oct. 13, when the Dow jumped 936.42 points and the S&P 500 climbed 104.13 points after governments pledged to pour cash into struggling banks and a Japanese banking group completed its investment in Morgan Stanley.
The yen's recent rally forced an unwinding of the so-called "carry trade" -- a phenomenon of Japan's low interest rates, in which investors borrowed yen to finance investments in high er-yielding assets, such as U.S. stocks.
On Tuesday, the dollar achieved its biggest gain against the yen since 1974, according to Reuters data.
Wall Street also got a lift as investors moved to readjust their stock portfolios as a rough month for stocks draws to a close.
Wal-Mart's stock rose after the world's largest retailer stuck to its 2009 sales growth forecast, saying it will weather the economic turmoil now and could come out even stronger than its rivals when the economy rebounds. Wal-Mart shot up 11.1 percent to $55.17 on the New York Stock Exchange.
The rally came despite an economic picture that remained gloomy after data showed U.S. consumer confidence tumbled to a record low in October as the financial crisis made Americans anxious about their jobs and pessimistic about the future.
The gains were widespread, including shares of home builders that rose even in the face of data that showed prices of U.S. single-family homes plunged a record 16 .6 percent in August from a year earlier. D.R. Horton Inc climbed 9.8 percent to $5.16.
Even the Dow Jones index of home builders' shares finished up 6.01 percent.
Verizon ended at $31.65, up 14.6 percent, and AT&T finished at $27.61, up 13.2 percent, in NYSE trading.
In the oil sector, Exxon climbed 13.3 percent to $74.86, while Chevron soared 13.5 percent to $70.02. The big energy producers' shares gained even as front-month U.S. oil futures slipped 49 cents to settle at $62.73 a barrel.
Whirlpool Corp tumbled 8.3 percent to $45.87 after the world's biggest appliance maker said it would cut 7 percent of its workforce and slashed its 2008 earnings outlook amid weakening demand.
Trading was moderate on the New York Stock Exchange, with about 1.73 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion. Most of the volume came in the last hour of trading.
On Nasdaq, about 2.77 billion shares traded, above last year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on the NYSE by about 4 to 1 while on the Nasdaq, slightly more than two stocks rose for every one that fell.
A big catalyst for the late-day surge was a huge drop in the Japanese yen after a news report that the Bank of Japan may cut interest rates later this week. A sudden strengthening of the yen during the past week had been destabilizing stock markets around the world, and Tuesday's reversal of that trend was greeted with relief by investors.
The Federal Reserve is expected to cut its benchmark fed funds rate by at least 50 basis points on Wednesday when it concludes a two-day meeting that began this afternoon.
Shares of capital-hungry companies such as telecoms posted the day's sharpest gains, including Verizon Communications, up over 14 percent, and AT&T, up over 13 percent.
Big oil companies gave the Dow its biggest boost after British major BP Plc reported a record quarterly profit, beating expectations. Exxon Mobil and Chevron both rose more than 13 percent.
Shares of Boeing jumped 15.5 percent to $48.91 after the aircraft manufacturer reached a tentative agreement with its largest union to end a strike and stop revenue losses estimated at $100 million a day.
Typically when the market gets to oversold extremes, stocks see a bounce back, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
"If you believe that governments around the world are going to be successful in reengerizing financial markets and gradually bringing back confidence and stability in the weeks and months ahead, then you probably want to be more of a buyer than a seller," Sheldon said.
The Dow Jones industrial average jumped 889.35 points, or 10.88 percent, to 9,065.12. The Standard & Poor's 500 Index surged 91.59 points, or 10.79 percent, to 940.51. The Nasdaq Composite Index ran up 143.57 points, or 9.53 percent, to 1,649.47.
It was the second-biggest point gain ever for the Dow and the S&P. These advances were surpassed only by the rally on Oct. 13, when the Dow jumped 936.42 points and the S&P 500 climbed 104.13 points after governments pledged to pour cash into struggling banks and a Japanese banking group completed its investment in Morgan Stanley.
The yen's recent rally forced an unwinding of the so-called "carry trade" -- a phenomenon of Japan's low interest rates, in which investors borrowed yen to finance investments in high er-yielding assets, such as U.S. stocks.
On Tuesday, the dollar achieved its biggest gain against the yen since 1974, according to Reuters data.
Wall Street also got a lift as investors moved to readjust their stock portfolios as a rough month for stocks draws to a close.
Wal-Mart's stock rose after the world's largest retailer stuck to its 2009 sales growth forecast, saying it will weather the economic turmoil now and could come out even stronger than its rivals when the economy rebounds. Wal-Mart shot up 11.1 percent to $55.17 on the New York Stock Exchange.
The rally came despite an economic picture that remained gloomy after data showed U.S. consumer confidence tumbled to a record low in October as the financial crisis made Americans anxious about their jobs and pessimistic about the future.
The gains were widespread, including shares of home builders that rose even in the face of data that showed prices of U.S. single-family homes plunged a record 16 .6 percent in August from a year earlier. D.R. Horton Inc climbed 9.8 percent to $5.16.
Even the Dow Jones index of home builders' shares finished up 6.01 percent.
Verizon ended at $31.65, up 14.6 percent, and AT&T finished at $27.61, up 13.2 percent, in NYSE trading.
In the oil sector, Exxon climbed 13.3 percent to $74.86, while Chevron soared 13.5 percent to $70.02. The big energy producers' shares gained even as front-month U.S. oil futures slipped 49 cents to settle at $62.73 a barrel.
Whirlpool Corp tumbled 8.3 percent to $45.87 after the world's biggest appliance maker said it would cut 7 percent of its workforce and slashed its 2008 earnings outlook amid weakening demand.
Trading was moderate on the New York Stock Exchange, with about 1.73 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion. Most of the volume came in the last hour of trading.
On Nasdaq, about 2.77 billion shares traded, above last year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on the NYSE by about 4 to 1 while on the Nasdaq, slightly more than two stocks rose for every one that fell.
Friday, October 10, 2008
Asian markets tumble on heels of Wall Street sell-off
TOKYO (AP) -- Stock markets across Asia posted sharp losses in early trading Friday on the heels of a steep sell-off on Wall Street.
Tokyo's benchmark Nikkei 225 index lost 974.12 points, or 10.64 percent, to close the morning session at 8,183.37. At one point in the frantic morning trading, the index shed 11.4 percent.
"We are seeing a meltdown in the world stock market due to growing fears over a global recession," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC Co. Ltd.
The sell-off in Asian markets comes after the Dow Jones industrial average Thursday dropped a staggering 679 points, or 7.3 percent, to close below the 9,000-line for the first time in five years.
In Seoul, South Korea, the benchmark Korea Composite Stock Price Index fell 7.1 percent, or 92.05 points, to 1,202.84 after the first hour of trading. At one point the Kospi fell as much as 9 percent.
Hong Kong's blue chip Hang Seng index was down 7.6 percent, or 1,211.48 points, at 14,731.76 minutes after trading started. The index rose 3.3 percent on Thursday.
In active trading at midday, the Australian benchmark S&P/ASX200 was down 256.8 points, or 5.94 per cent, to 4064.1, after earlier falling 7.1 percent.
Lucinda Chan, associate director of Macquarie Equities in Sydney, called the market moves "ghastly."
"It is a very different and very unprecedented climate at the moment," she said. "Growth is going to be a major concern in this market and that is why the Australian market is getting a very hard pinch, because we are a commodity export nation."
New Zealand's benchmark NZX-50 index fell 3.52 percent in its first four hours of trading Friday, hitting its lowest level since November 2004 as the market notched up its sixth successive day of losses.
Meanwhile, the president of the Indonesian stock exchange said trading will be suspended indefinitely "to prevent deeper panic," after another huge drop on Wall Street.
Indonesian authorities had planned to reopen the market Friday morning after a suspension was imposed Wednesday.
Tokyo's benchmark Nikkei 225 index lost 974.12 points, or 10.64 percent, to close the morning session at 8,183.37. At one point in the frantic morning trading, the index shed 11.4 percent.
"We are seeing a meltdown in the world stock market due to growing fears over a global recession," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC Co. Ltd.
The sell-off in Asian markets comes after the Dow Jones industrial average Thursday dropped a staggering 679 points, or 7.3 percent, to close below the 9,000-line for the first time in five years.
In Seoul, South Korea, the benchmark Korea Composite Stock Price Index fell 7.1 percent, or 92.05 points, to 1,202.84 after the first hour of trading. At one point the Kospi fell as much as 9 percent.
Hong Kong's blue chip Hang Seng index was down 7.6 percent, or 1,211.48 points, at 14,731.76 minutes after trading started. The index rose 3.3 percent on Thursday.
In active trading at midday, the Australian benchmark S&P/ASX200 was down 256.8 points, or 5.94 per cent, to 4064.1, after earlier falling 7.1 percent.
Lucinda Chan, associate director of Macquarie Equities in Sydney, called the market moves "ghastly."
"It is a very different and very unprecedented climate at the moment," she said. "Growth is going to be a major concern in this market and that is why the Australian market is getting a very hard pinch, because we are a commodity export nation."
New Zealand's benchmark NZX-50 index fell 3.52 percent in its first four hours of trading Friday, hitting its lowest level since November 2004 as the market notched up its sixth successive day of losses.
Meanwhile, the president of the Indonesian stock exchange said trading will be suspended indefinitely "to prevent deeper panic," after another huge drop on Wall Street.
Indonesian authorities had planned to reopen the market Friday morning after a suspension was imposed Wednesday.
Asian markets plunge after huge Wall Street losses; Tokyo's Nikkei sinks more than 10 percent
TOKYO (AP) -- A massive sell-off on Wall Street and an escalating global equity crisis sent Asian stocks plunging Friday, with Japan's benchmark Nikkei 225 index tumbling more than 10 percent.
"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. in Tokyo. "Investors were gripped by fear."
Hong Kong's Hang Seng index tumbled more than 8 percent, South Korea's Kospi shed 7.4 percent, Shanghai's benchmark fell 4.1 percent, and Singapore's Straits Times index was off 7.0 percent. In Syndey, Australia's S&P/ASX200 was down 6.8 percent.
Friday's regional declines follow a 7.3 percent plunge in the Dow Jones industrial average Thursday to close below the 9,000-line for the first time in five years. Stocks nose-dived after a major credit-rating agency said it might cut its rating on General Motors Corp. and Ford Motor Co., further rattling investors already fretting over the impact of tight credit on the economy.
The Dow's 2,271-point tumble over the last seven sessions is its steepest seven-day point drop ever. Its seven-day percentage decline of 20.9 percent is the largest since the seven-day plunge ending Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987 market crash that saw the Dow fall nearly 23 percent in a single day.
Lucinda Chan, associate director of Macquarie Equities in Sydney, called the market moves "ghastly."
"It is a very different and very unprecedented climate at the moment," she said. "Growth is going to be a major concern in this market and that is why the Australian market is getting a very hard pinch because we are a commodity export nation."
Miura in Tokyo said the ongoing meltdown in global financial markets showed "confusion and uncertainty" among investors worldwide.
Asia's falls come as finance ministers and central bankers from the Group of Seven industrialized nations prepared to meet later Friday in Washington.
"Investors are not so sure that the G7 will announce effective measures to contain the global financial crisis," Miura said.
In currencies, the dollar was hovering just above the 99-yen level Friday morning in Asia, strengthening from 98.82 yen late Thursday. The euro stood at $1.3595 from $1.3560.
"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. in Tokyo. "Investors were gripped by fear."
Hong Kong's Hang Seng index tumbled more than 8 percent, South Korea's Kospi shed 7.4 percent, Shanghai's benchmark fell 4.1 percent, and Singapore's Straits Times index was off 7.0 percent. In Syndey, Australia's S&P/ASX200 was down 6.8 percent.
Friday's regional declines follow a 7.3 percent plunge in the Dow Jones industrial average Thursday to close below the 9,000-line for the first time in five years. Stocks nose-dived after a major credit-rating agency said it might cut its rating on General Motors Corp. and Ford Motor Co., further rattling investors already fretting over the impact of tight credit on the economy.
The Dow's 2,271-point tumble over the last seven sessions is its steepest seven-day point drop ever. Its seven-day percentage decline of 20.9 percent is the largest since the seven-day plunge ending Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987 market crash that saw the Dow fall nearly 23 percent in a single day.
Lucinda Chan, associate director of Macquarie Equities in Sydney, called the market moves "ghastly."
"It is a very different and very unprecedented climate at the moment," she said. "Growth is going to be a major concern in this market and that is why the Australian market is getting a very hard pinch because we are a commodity export nation."
Miura in Tokyo said the ongoing meltdown in global financial markets showed "confusion and uncertainty" among investors worldwide.
Asia's falls come as finance ministers and central bankers from the Group of Seven industrialized nations prepared to meet later Friday in Washington.
"Investors are not so sure that the G7 will announce effective measures to contain the global financial crisis," Miura said.
In currencies, the dollar was hovering just above the 99-yen level Friday morning in Asia, strengthening from 98.82 yen late Thursday. The euro stood at $1.3595 from $1.3560.
Wednesday, October 8, 2008
Nikkei dives 9.4 percent, biggest 1-day fall since '87
TOKYO (Reuters) - The Nikkei average plunged 9.4 percent on Wednesday, its biggest drop since the 1987 stock market crash, as growing fears of a global recession led investors to wipe $250 billion off the value of Tokyo shares.
Toyota Motor Corp (Tokyo:7203.T - News) tumbled more than 11 percent on growing expectations that the crisis would bite deeper into its profits, while the yen hit a six-month high against the dollar, adding to the pressure on exporter shares.
Panic over the fast-spreading financial crisis dragged down markets across Asia, with Japanese steelmakers such as Nippon Steel Corp (Tokyo:5401.T - News) sliding, as the Nikkei set another five-year closing low. It has lost 19 percent in the past five days.
"The deteriorating outlook for the economy and the deepening financial crisis are pushing fear to its limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Investors want to dump shares as their willingness to take risks has shrunk, but no one wants to buy even if stocks are valued cheaply."
The yen climbed to a six-month high against the tumbling U.S. dollar, as investors stampeded away from stocks and risky positions. (FRX/)
The Nikkei posted its biggest one-day fall since a 14.9 percent drop on October 20, 1987, the day after Black Monday, and logged the third-largest one-day drop ever.
The Indonesia Stock Exchange halted trading on Wednesday after the benchmark composite index (Jakarta:^JKSE - News) dropped more than 10 percent, while Hong Kong's main stock market index (HKSE:^HSI - News) dropped more than 5 percent.
The benchmark Nikkei (Osaka:^N225 - News) slid 952.58 points to 9,203.32, its lowest close since June 2003.
The broader Topix (^TOPX - News) lost 8.0 percent to 899.01.
Trade picked up on the Tokyo exchange's first section, with 2.86 billion shares changing hands, compared with last week's daily average of 2.08 billion.
Declining stocks outnumbered advancing ones by more than 37 to 1.
The value of the Tokyo exchange's first section finished Wednesday at 287 trillion yen ($2,835 billion), down $250 billion. (.MV1.T)
Analysts said that even at lower valuations, investors would still shun stocks as more companies were expected to cut their earnings forecasts.
"Investors are not selling because Japanese stocks are good or bad, but because of the credit squeeze," said Kenichi Hirano, operating officer at Tachibana Securities.
"I see around 9,300 as the possible bottom for the Nikkei average, considering projected corporate earnings for the year ending March 2009."
The projected price-earnings ratio of the Nikkei stock average tumbled to a 37-year low at 12.5 times on Tuesday, according to the Nikkei business daily.
Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp, said the Nikkei was likely to see further declines due to a lack of policy responses from Japanese authorities, such as additional fiscal spending steps to support the economy.
He added it was also hard to expect any major initiatives from the meeting of Group of Seven finance ministers on Friday.
"If there was something they could do, I think they would have already done it," Uno said.
Still, Prime Minister Taro Aso said on Wednesday the fall in Japanese shares was abnormal.
EXPORTERS BATTERED
"Toyota is such a symbolic issue in Japan's manufacturing sector, and the fact that the company is likely to post an earnings decline of this scale, has got to have a severe impact on investor sentiment," said Mizuho Asset Management fund manager Yoshihisa Okamoto.
Shares of Toyota tumbled 11.6 percent to 3,280 yen. The automaker is considering cutting its annual earnings forecasts due to sluggish demand in industrialized nations, slowing sales in emerging markets and a firmer yen, a company source said.
Among other exporters, Advantest Corp (Tokyo:6857.T - News), the world's No.1 maker of chip testers, tumbled 14.9 percent to 1,538 yen, while Honda Motor Corp (Tokyo:7267.T - News) sank 10.3 percent to 2,305 yen.
Shares of Nippon Steel lost 11.9 percent to 281 yen, while shipping firm Mitsui OSK Lines (Tokyo:9104.T - News) shed 12.8 percent to 622 yen.
Financial shares also fell but many outperformed the overall market. Top lender Mitsubishi UFJ Financial Group (Tokyo:8306.T - News) dropped 5.9 percent to 763 yen, and No.2 Mizuho Financial Group (Tokyo:8411.T - News) slid 7.7 percent to 361,000 yen.
Investors punished stocks with earnings worries.
Hitachi Construction Machinery Co (Tokyo:6305.T - News), Japan's second-biggest earth-moving equipment maker, plunged 16.5 percent to 1,516 yen.
The Nikkei business paper reported that Hitachi Construction could see a first profit decline in seven years in the year to March 2009 due to a sharp fall in demand in Europe and signs of weakening sales in countries such as India and Russia.
Toyota Motor Corp (Tokyo:7203.T - News) tumbled more than 11 percent on growing expectations that the crisis would bite deeper into its profits, while the yen hit a six-month high against the dollar, adding to the pressure on exporter shares.
Panic over the fast-spreading financial crisis dragged down markets across Asia, with Japanese steelmakers such as Nippon Steel Corp (Tokyo:5401.T - News) sliding, as the Nikkei set another five-year closing low. It has lost 19 percent in the past five days.
"The deteriorating outlook for the economy and the deepening financial crisis are pushing fear to its limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Investors want to dump shares as their willingness to take risks has shrunk, but no one wants to buy even if stocks are valued cheaply."
The yen climbed to a six-month high against the tumbling U.S. dollar, as investors stampeded away from stocks and risky positions. (FRX/)
The Nikkei posted its biggest one-day fall since a 14.9 percent drop on October 20, 1987, the day after Black Monday, and logged the third-largest one-day drop ever.
The Indonesia Stock Exchange halted trading on Wednesday after the benchmark composite index (Jakarta:^JKSE - News) dropped more than 10 percent, while Hong Kong's main stock market index (HKSE:^HSI - News) dropped more than 5 percent.
The benchmark Nikkei (Osaka:^N225 - News) slid 952.58 points to 9,203.32, its lowest close since June 2003.
The broader Topix (^TOPX - News) lost 8.0 percent to 899.01.
Trade picked up on the Tokyo exchange's first section, with 2.86 billion shares changing hands, compared with last week's daily average of 2.08 billion.
Declining stocks outnumbered advancing ones by more than 37 to 1.
The value of the Tokyo exchange's first section finished Wednesday at 287 trillion yen ($2,835 billion), down $250 billion. (.MV1.T)
Analysts said that even at lower valuations, investors would still shun stocks as more companies were expected to cut their earnings forecasts.
"Investors are not selling because Japanese stocks are good or bad, but because of the credit squeeze," said Kenichi Hirano, operating officer at Tachibana Securities.
"I see around 9,300 as the possible bottom for the Nikkei average, considering projected corporate earnings for the year ending March 2009."
The projected price-earnings ratio of the Nikkei stock average tumbled to a 37-year low at 12.5 times on Tuesday, according to the Nikkei business daily.
Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp, said the Nikkei was likely to see further declines due to a lack of policy responses from Japanese authorities, such as additional fiscal spending steps to support the economy.
He added it was also hard to expect any major initiatives from the meeting of Group of Seven finance ministers on Friday.
"If there was something they could do, I think they would have already done it," Uno said.
Still, Prime Minister Taro Aso said on Wednesday the fall in Japanese shares was abnormal.
EXPORTERS BATTERED
"Toyota is such a symbolic issue in Japan's manufacturing sector, and the fact that the company is likely to post an earnings decline of this scale, has got to have a severe impact on investor sentiment," said Mizuho Asset Management fund manager Yoshihisa Okamoto.
Shares of Toyota tumbled 11.6 percent to 3,280 yen. The automaker is considering cutting its annual earnings forecasts due to sluggish demand in industrialized nations, slowing sales in emerging markets and a firmer yen, a company source said.
Among other exporters, Advantest Corp (Tokyo:6857.T - News), the world's No.1 maker of chip testers, tumbled 14.9 percent to 1,538 yen, while Honda Motor Corp (Tokyo:7267.T - News) sank 10.3 percent to 2,305 yen.
Shares of Nippon Steel lost 11.9 percent to 281 yen, while shipping firm Mitsui OSK Lines (Tokyo:9104.T - News) shed 12.8 percent to 622 yen.
Financial shares also fell but many outperformed the overall market. Top lender Mitsubishi UFJ Financial Group (Tokyo:8306.T - News) dropped 5.9 percent to 763 yen, and No.2 Mizuho Financial Group (Tokyo:8411.T - News) slid 7.7 percent to 361,000 yen.
Investors punished stocks with earnings worries.
Hitachi Construction Machinery Co (Tokyo:6305.T - News), Japan's second-biggest earth-moving equipment maker, plunged 16.5 percent to 1,516 yen.
The Nikkei business paper reported that Hitachi Construction could see a first profit decline in seven years in the year to March 2009 due to a sharp fall in demand in Europe and signs of weakening sales in countries such as India and Russia.
Taiwan shares tumble following Wall Street's overnight plunge
TAIPEI, Taiwan (AP) -- Taiwanese shares fell sharply Wednesday, losing 5.76 percent, following Wall Street's overnight plunge.
The weighted price index of the Taiwan Stock market lost 318.26 points to close at the session low of 5,206.40.
The financial sector was the biggest loser, plunging 6.7 percent. Cement shares dropped 6.2 percent.
The tumble came despite media speculation that the government had injected large amounts of money into the market.
The weighted price index of the Taiwan Stock market lost 318.26 points to close at the session low of 5,206.40.
The financial sector was the biggest loser, plunging 6.7 percent. Cement shares dropped 6.2 percent.
The tumble came despite media speculation that the government had injected large amounts of money into the market.
Wall Street heads for higher open after Federal Reserve emergency rate cut
NEW YORK (AP) -- Wall Street turned around early Wednesday, with stock index futures rising in response to emergency interest rate cuts by the Federal Reserve and other central banks. There was still caution in the market, however, as futures gave back some of their early pop higher.
The stock market had been heading to another sharp drop, joining world markets that were plunging in response to spiraling worries about the global financial system, when the Fed announced it was cutting rates by a half-percentage point. The central bank noted that the market turmoil posed a further threat to an already shaky economy; it was joined in the rate cut by banks including the European Central Bank and the Bank of England.
Dow Jones industrial average futures rose 102, or 1.05 percent, to 9,640. Standard & Poor's 500 index futures added 21.60, or 2.812 percent, to 1,028.10, while Nasdaq 100 futures rose 2.41, or 2.41 percent, to 1,368.75.
But futures came off their highs and were fluctuating, a sign that while the markets are happy about the rate cut, investors realize that the stagnant credit markets and the economy remain extremely troubled and are likely to remain so for some time.
"With all of this occuring as a coordinated effort is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "But, the big question now is can the credit market open for business."
In Asia, the Nikkei 225 closed 9.38 percent lower and Hang Seng tumbled 8.17 percent hours before the rate cuts were announced; their declines showed the extent of the worldwide gloom. European indexes, which were down about 5 percent before the rate cut, pared their losses. In Britain, the FTSE-100 fell 0.65 percent, Germany's DAX dropped 2.15 percent, and France's CAC-40 gave up 1.87 percent.
Investors had been extremely anxious in recent days for a rate cut, and while the Fed had taken other steps this week to try to ease the stagnant credit markets, including buying commercial paper, the short-term debt used by companies, its moves weren't enough to stanch losses that have taken the Dow Jones industrials down 875 points in just two days this week.
It is very likely that stocks won't begin to recover for good until investors are certain the credit markets are functioning in a more normal fashion. But there are also severe economic problems including heavy job losses and high unemployment that will also need to show improvement.
Credit has all but dried up in the weeks after the failure of Lehman Brothers Holdings Inc. Banks have been reluctant to lend for fear they won't be paid back. That in turn has been stifling the economy, and led to the huge plunges on Wall Street in recent weeks.
Demand for short-term Treasurys remained high because of their safety after the rate cut; investors are willing to take extremely low returns just to have their money in a secure place. The yield on the three-month Treasury bill, which moves opposite its price, dropped to 0.72 percent from 0.81 percent late Tuesday.
Investors also were buying 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 fell to 3.46 percent from 3.51 percent late Tuesday.
The first third-quarter earnings reports are showing signs of strain on companies, and that is adding more uncertainty to the stock market. After the close Tuesday, Alcoa Inc. said it would conserve cash by suspending its stock buyback program and all non-critical capital projects. The aluminum company's earnings fell 52 percent.
The stock market had been heading to another sharp drop, joining world markets that were plunging in response to spiraling worries about the global financial system, when the Fed announced it was cutting rates by a half-percentage point. The central bank noted that the market turmoil posed a further threat to an already shaky economy; it was joined in the rate cut by banks including the European Central Bank and the Bank of England.
Dow Jones industrial average futures rose 102, or 1.05 percent, to 9,640. Standard & Poor's 500 index futures added 21.60, or 2.812 percent, to 1,028.10, while Nasdaq 100 futures rose 2.41, or 2.41 percent, to 1,368.75.
But futures came off their highs and were fluctuating, a sign that while the markets are happy about the rate cut, investors realize that the stagnant credit markets and the economy remain extremely troubled and are likely to remain so for some time.
"With all of this occuring as a coordinated effort is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "But, the big question now is can the credit market open for business."
In Asia, the Nikkei 225 closed 9.38 percent lower and Hang Seng tumbled 8.17 percent hours before the rate cuts were announced; their declines showed the extent of the worldwide gloom. European indexes, which were down about 5 percent before the rate cut, pared their losses. In Britain, the FTSE-100 fell 0.65 percent, Germany's DAX dropped 2.15 percent, and France's CAC-40 gave up 1.87 percent.
Investors had been extremely anxious in recent days for a rate cut, and while the Fed had taken other steps this week to try to ease the stagnant credit markets, including buying commercial paper, the short-term debt used by companies, its moves weren't enough to stanch losses that have taken the Dow Jones industrials down 875 points in just two days this week.
It is very likely that stocks won't begin to recover for good until investors are certain the credit markets are functioning in a more normal fashion. But there are also severe economic problems including heavy job losses and high unemployment that will also need to show improvement.
Credit has all but dried up in the weeks after the failure of Lehman Brothers Holdings Inc. Banks have been reluctant to lend for fear they won't be paid back. That in turn has been stifling the economy, and led to the huge plunges on Wall Street in recent weeks.
Demand for short-term Treasurys remained high because of their safety after the rate cut; investors are willing to take extremely low returns just to have their money in a secure place. The yield on the three-month Treasury bill, which moves opposite its price, dropped to 0.72 percent from 0.81 percent late Tuesday.
Investors also were buying 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 fell to 3.46 percent from 3.51 percent late Tuesday.
The first third-quarter earnings reports are showing signs of strain on companies, and that is adding more uncertainty to the stock market. After the close Tuesday, Alcoa Inc. said it would conserve cash by suspending its stock buyback program and all non-critical capital projects. The aluminum company's earnings fell 52 percent.
Tuesday, October 7, 2008
Panic over financial system knocks Asia stocks
Panic about how the U.S. and European governments have not yet found a solution to the plague sweeping through the global financial system hit Asian stocks again on Tuesday and lifted gold prices.
The South Korean won dropped 5.7 percent to the lowest in more than 7 years against the U.S. dollar as investors focused on the country's relatively high level of debts, despite assurances from the government that Asia's fourth-largest economy was not facing a currency crisis.
The $700 billion U.S. rescue fund, ad hoc measures by European governments and massive injections of funds by central banks around the world have not been able to stop confidence in the financial system from evaporating or growing fears the global economy is on path to recession.
On Monday, the Dow Jones industrial average closed at a 4-year low after dipping below 10,000 points for the first time since October 2004.
The fury with which global equity markets have sold off in recent weeks and the worsening condition of the financial system has made the upcoming Group of Seven rich nations meeting even more important. Investors have begun to anticipate some kind of cooperation among countries to solve the morasse.
"The key issue is coordination of policies, since individual country policies aimed at shoring up confidence of domestic institutions can actually exacerbate systemic risk by altering relative risk between countries," said Ashley Davies, currency strategist with UBS in Singapore. "As such, a coordinated global approach by the major financial powers may be critical to containing the destructive aspects of global deleveraging," he said in a note.
The Nikkei was down 2.8 percent after earlier slipping to its lowest since December 2003. Shares of high-profile exporters Canon Inc and Honda Motor Co were among the biggest drags on the index.
Australia's benchmark S&P/ASX 200 index slid 2.1 percent to a 3-year low.
South Korea's KOSPI was down 0.9 percent after closing at the lowest in 21 months on Monday.
The country's regulator said it was considering steps to reduce volatility in the equity market, helping to stem some of the day's losses.
The MSCI All-Country world stocks index closed at a four-year low on Monday, having dropped by a third so far this year.
In other markets, dealers picked up the pieces a day after the Chicago Board Options Exchange Volatility index, better known as the VIX, vaulted to a record high of 58.24 as investors scrambled to buy protection against plummeting global stock markets.
"At this point, all we can do is to wait and see how effective the U.S. financial rescue plan or any other coordinated government efforts will be in thawing global capital markets," said Lee Kyoung-su, a market analyst at Taurus Investment & Securities in Seoul.
The benchmark 10-year U.S. Treasury note yield, which moves in the opposite direction of the price, ticked up to 3.49 percent after dropping to 3.46 percent late on Monday in New York. It was still down sharply from 3.60 percent late last week, reflecting the heavy demand for government debt as a relatively safe haven from market shockwaves.
Japanese 10-year government bond futures were down 0.6 point to 137.90 after rising for three straight days.
Frozen interbank lending markets and bank rescues remained a feature in the United States and Europe. But the bailout of two big European banks and a decision by several European governments to guarantee bank deposits in emergency moves in the last several days have done little to dispel intense waves of fear among investors.
After a massive surge on Monday, the yen edged up against the dollar and the euro but slipped against higher-yielding currencies such as the Australian and New Zealand dollars.
The dollar dipped 0.4 percent against the Japanese currency to 101.44 yen, edging toward a six-month low of 100.22 yen hit on trading platform EBS the previous day.
The European single currency edged up 0.2 percent to $1.3531. The euro struck a 13-month low below $1.3450 on Monday, hit hard by a decision by leaders of Europe's four biggest economies against a coordinated bailout plan.
The euro slipped 0.2 percent to 137.24 yen.
Gold climbed in the spot market, up 0.7 percent to $863.50 an ounce after rocketing nearly 4 percent on Monday on a flight to anything resembling safety.
The South Korean won dropped 5.7 percent to the lowest in more than 7 years against the U.S. dollar as investors focused on the country's relatively high level of debts, despite assurances from the government that Asia's fourth-largest economy was not facing a currency crisis.
The $700 billion U.S. rescue fund, ad hoc measures by European governments and massive injections of funds by central banks around the world have not been able to stop confidence in the financial system from evaporating or growing fears the global economy is on path to recession.
On Monday, the Dow Jones industrial average closed at a 4-year low after dipping below 10,000 points for the first time since October 2004.
The fury with which global equity markets have sold off in recent weeks and the worsening condition of the financial system has made the upcoming Group of Seven rich nations meeting even more important. Investors have begun to anticipate some kind of cooperation among countries to solve the morasse.
"The key issue is coordination of policies, since individual country policies aimed at shoring up confidence of domestic institutions can actually exacerbate systemic risk by altering relative risk between countries," said Ashley Davies, currency strategist with UBS in Singapore. "As such, a coordinated global approach by the major financial powers may be critical to containing the destructive aspects of global deleveraging," he said in a note.
The Nikkei was down 2.8 percent after earlier slipping to its lowest since December 2003. Shares of high-profile exporters Canon Inc and Honda Motor Co were among the biggest drags on the index.
Australia's benchmark S&P/ASX 200 index slid 2.1 percent to a 3-year low.
South Korea's KOSPI was down 0.9 percent after closing at the lowest in 21 months on Monday.
The country's regulator said it was considering steps to reduce volatility in the equity market, helping to stem some of the day's losses.
The MSCI All-Country world stocks index closed at a four-year low on Monday, having dropped by a third so far this year.
In other markets, dealers picked up the pieces a day after the Chicago Board Options Exchange Volatility index, better known as the VIX, vaulted to a record high of 58.24 as investors scrambled to buy protection against plummeting global stock markets.
"At this point, all we can do is to wait and see how effective the U.S. financial rescue plan or any other coordinated government efforts will be in thawing global capital markets," said Lee Kyoung-su, a market analyst at Taurus Investment & Securities in Seoul.
The benchmark 10-year U.S. Treasury note yield, which moves in the opposite direction of the price, ticked up to 3.49 percent after dropping to 3.46 percent late on Monday in New York. It was still down sharply from 3.60 percent late last week, reflecting the heavy demand for government debt as a relatively safe haven from market shockwaves.
Japanese 10-year government bond futures were down 0.6 point to 137.90 after rising for three straight days.
Frozen interbank lending markets and bank rescues remained a feature in the United States and Europe. But the bailout of two big European banks and a decision by several European governments to guarantee bank deposits in emergency moves in the last several days have done little to dispel intense waves of fear among investors.
After a massive surge on Monday, the yen edged up against the dollar and the euro but slipped against higher-yielding currencies such as the Australian and New Zealand dollars.
The dollar dipped 0.4 percent against the Japanese currency to 101.44 yen, edging toward a six-month low of 100.22 yen hit on trading platform EBS the previous day.
The European single currency edged up 0.2 percent to $1.3531. The euro struck a 13-month low below $1.3450 on Monday, hit hard by a decision by leaders of Europe's four biggest economies against a coordinated bailout plan.
The euro slipped 0.2 percent to 137.24 yen.
Gold climbed in the spot market, up 0.7 percent to $863.50 an ounce after rocketing nearly 4 percent on Monday on a flight to anything resembling safety.
Tuesday, September 30, 2008
GLOBAL MARKETS-Thwarted bailout hammers Asia stocks; yen up
* U.S. House rejects $700 bln bank bailout plan
* Yen rises to 4-month high vs U.S. dollar
* Wall St fear gauge climbs to record high
* Asian share markets dive 4-7 percent
HONG KONG, Sept 30 (Reuters) - Asian stocks dropped sharply and the yen hit a 4-month high on Tuesday, after U.S. lawmakers' shock rejection of a $700 billion effort to end financial panic triggered the biggest fall in the U.S. S&P 500 since the 1987 stock market crash.
Raw fear gripped markets, with oil prices diving by a tenth and gold prices rising for a third day, as investors faced hard realities that big economies could all be headed for a recession and the crisis of confidence in the bank industry could persist.
The failure of Washington's biggest and most comprehensive bid to keep the financial sector shockwaves from tearing up the real economy accelerated a move by investors from perceived risky assets to more stable holdings and even plain cash.
"Those voting against it saw, like me, that there's no kind cure for excessive leverage," said Brett Williams, credit analyst with BNP Paribas in Hong Kong.
"A modified bill may likely be represented for another vote, in an effort to save some face, but better to brace for violent price swings in all asset classes," he said in a note.
Japan's Nikkei share average .N225 tumbled 4.5 percent to a 2008 low, and the MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS fell more than 3 percent, not far off a 26-month low.
Global equities have had a high inverse correlation with the Chicago Board Options Exchange Volatility index, also known as the VIX .VIX. The last 24 hours have been no exception.
The VIX -- Wall Street's fear gauge -- closed at a record high overnight, reflecting immense needs to hedge positions in U.S. equities.
Investors around the world have been scrambling to eliminate any risk in their portfolios, loading up on traditional safe harbours in times of extreme volatility like short-term U.S. government debt and gold.
Gold prices in the spot market edged up 0.25 percent to $905.50 an ounce, after touching a 2-month high overnight of $920 an ounce.
Yields on Treasury debt with maturities below 1-year climbed, with the 1-month bill yield sinking to 0.035 percent. The 3-month bill yield was at 0.7 percent .
Another asset that has gained favour during times of widespread uncertainty is the yen.
Though central banks outside the United States have had to set up special currency swap programs to meet high demand for U.S. dollar funding, investors have been turning to the yen as a haven.
"For currencies, the only trade in town with any staying power is risk aversion and the yen remains the favored pick," said Alan Ruskin, chief international strategist with RBS Greenwich Capital, in a note.
"I think the yen positive story remains clear-cut against all the major Europeans, and particularly the emerging world."
The dollar dropped to a 4-month low near 103.50 yen before edging back up to 104.24 yen. The euro was down a modest 0.1 percent at 149.80 yen and off 0.35 percent at $1.4368 .
The U.S. House of Representatives voted 228-205 against a compromise bailout plan that would have allowed the Treasury Department to buy up illiquid assets from struggling banks.
House Republicans, in particular, balked at spending so much taxpayer money just before the Nov. 4 presidential election.
Australian Prime Minister Kevin Rudd called for global pressure to convince U.S. lawmakers to put the world's economy ahead of the U.S. presidential race and pass the bailout package.
"These are turbulent times, these are worrying times," Rudd told a news conference in Canberra.
"The call we need to make is for them to put aside party politics and pass this package because it is necessary for the stabilisation of U.S. financial markets and global financial markets," he said. "All of our interests are at stake here."
Banks continued to be toppled or swallowed up by other firms, both in the United States and in Europe, as the financial crisis spread.
In the latest big deal, Citigroup (C.N: Quote, Profile, Research, Stock Buzz) agreed to buy Wachovia Corp's (WB.N: Quote, Profile, Research, Stock Buzz) US banking operations for $2.2 billion. [ID:nN29399473]
* Yen rises to 4-month high vs U.S. dollar
* Wall St fear gauge climbs to record high
* Asian share markets dive 4-7 percent
HONG KONG, Sept 30 (Reuters) - Asian stocks dropped sharply and the yen hit a 4-month high on Tuesday, after U.S. lawmakers' shock rejection of a $700 billion effort to end financial panic triggered the biggest fall in the U.S. S&P 500 since the 1987 stock market crash.
Raw fear gripped markets, with oil prices diving by a tenth and gold prices rising for a third day, as investors faced hard realities that big economies could all be headed for a recession and the crisis of confidence in the bank industry could persist.
The failure of Washington's biggest and most comprehensive bid to keep the financial sector shockwaves from tearing up the real economy accelerated a move by investors from perceived risky assets to more stable holdings and even plain cash.
"Those voting against it saw, like me, that there's no kind cure for excessive leverage," said Brett Williams, credit analyst with BNP Paribas in Hong Kong.
"A modified bill may likely be represented for another vote, in an effort to save some face, but better to brace for violent price swings in all asset classes," he said in a note.
Japan's Nikkei share average .N225 tumbled 4.5 percent to a 2008 low, and the MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS fell more than 3 percent, not far off a 26-month low.
Global equities have had a high inverse correlation with the Chicago Board Options Exchange Volatility index, also known as the VIX .VIX. The last 24 hours have been no exception.
The VIX -- Wall Street's fear gauge -- closed at a record high overnight, reflecting immense needs to hedge positions in U.S. equities.
Investors around the world have been scrambling to eliminate any risk in their portfolios, loading up on traditional safe harbours in times of extreme volatility like short-term U.S. government debt and gold.
Gold prices in the spot market edged up 0.25 percent to $905.50 an ounce
Yields on Treasury debt with maturities below 1-year climbed, with the 1-month bill yield
Another asset that has gained favour during times of widespread uncertainty is the yen.
Though central banks outside the United States have had to set up special currency swap programs to meet high demand for U.S. dollar funding, investors have been turning to the yen as a haven.
"For currencies, the only trade in town with any staying power is risk aversion and the yen remains the favored pick," said Alan Ruskin, chief international strategist with RBS Greenwich Capital, in a note.
"I think the yen positive story remains clear-cut against all the major Europeans, and particularly the emerging world."
The dollar dropped to a 4-month low near 103.50 yen before edging back up to 104.24 yen
The U.S. House of Representatives voted 228-205 against a compromise bailout plan that would have allowed the Treasury Department to buy up illiquid assets from struggling banks.
House Republicans, in particular, balked at spending so much taxpayer money just before the Nov. 4 presidential election.
Australian Prime Minister Kevin Rudd called for global pressure to convince U.S. lawmakers to put the world's economy ahead of the U.S. presidential race and pass the bailout package.
"These are turbulent times, these are worrying times," Rudd told a news conference in Canberra.
"The call we need to make is for them to put aside party politics and pass this package because it is necessary for the stabilisation of U.S. financial markets and global financial markets," he said. "All of our interests are at stake here."
Banks continued to be toppled or swallowed up by other firms, both in the United States and in Europe, as the financial crisis spread.
In the latest big deal, Citigroup (C.N: Quote, Profile, Research, Stock Buzz) agreed to buy Wachovia Corp's (WB.N: Quote, Profile, Research, Stock Buzz) US banking operations for $2.2 billion. [ID:nN29399473]
Wednesday, September 24, 2008
US Stocks extend fall as Street weighs bailout plan
NEW YORK (AP) -- Financial markets extended their declines Tuesday as investors worried that lawmakers were beginning to doubt the necessity of a broad government bailout for financial institutions as a way to revive ailing credit markets.
Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.
Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained some ground after being hard hit Monday.
After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing -- and also about resistance to the plan in Congress.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.
Traders grew nervous, and sent the stock market lower, as the officials faced questions about whether the government's planned response was appropriate. Sen. Chuck Schumer, D-N.Y., for example, asked whether $150 billion might be adequate to get the program started if investors were told more money could be added if necessary.
The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.
"There's skepticism about whether the $700 billion number is the right number," said Jim Herrick, manager and director of equity trading at Baird & Co.
Bernanke told the Senate Banking Committee Congress risks triggering a recession if it doesn't act on the plan. He said inaction could leave a range of businesses unable to borrow the money while consumers could find it impossible to finance big purchases like cars and homes.
While financial markets showed uneasiness as investors listened to the testimony, there wasn't the level of fear and volatility that dominated Monday's trading.
Demand for short-term Treasurys remained high. The yield on the 3-month T-bill fell to 0.79 percent from 0.88 percent on Monday; last week, it was around zero after investors flooded money into T-bills as the credit markets seized up. That spurred government officials to propose a debt buyout plan.
The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.80 percent from 3.85 percent late Monday.
The dollar, whose decline Monday drove some of the frenetic trading in other markets, regained some of its lost ground against the euro, while gold prices declined after starting the week with a big advance.
The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180. With Monday's 370-point decline, the blue chips are down 534 points, or 4.69 percent, for the week.
Broader stock indicators also fell Tuesday. The Standard & Poor's 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.67, or 1.18 percent, to 2,153.34.
Investors also were watching oil prices after anxiety over the government bailout and a huge short-covering rally pushed crude to the biggest one-day gain.
Light, sweet crude for November delivery fell $2.76 to settle at $106.61 on the New York Mercantile Exchange. The October contract, which expired Monday, surged as much as $25.45 to $130 before falling back to settle at $120.92, an advance of $16.37. While that gain was due to technical market dynamics, the price of oil has moved higher over the past week amid increasing concerns about the U.S. financial system.
"We're going to see this volatility for a while even after this package passes because I think we're still facing a fundamental slowdown in the economy worldwide which is going to have some impact on earnings," said J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners.
Financial stocks finished mixed as some investors worried that the government's plan could prove inadequate to save some banks. Should the government pay too little for assets some banks might be forced to book ruinous write-offs and risk going under.
Bank of America Corp. fell 85 cents, or 2.5 percent, to $33.30, while Washington Mutual Inc. fell 13 cents, or 3.9 percent, to $3.20.
Some energy names lost ground as oil declined. Occidental Petroleum Corp. fell $4.08, or 5 percent, to $77.16 and XTO Energy Inc. declined $1.14, or 2.2 percent, to $51.30.
In addition, some industrial stocks slid as investors worried about the well-being of the global economy. Aluminum maker Alcoa Inc. fell $1.21, or 4.5 percent, to $25.59. Seed company Monsanto Co. fell $4.85, or 4.2 percent, to $112.14.
Some technology stocks advanced as investors looked for areas outside the financial, energy and industrial sectors. Computer chip maker Intel Corp. rose 13 cents to $18.63, while Sprint Nextel Corp. rose 27 cents, or 4.2 percent, to $6.77.
Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to 5.11 billion shares, compared with 5.22 billion traded Monday.
The Russell 2000 index of smaller companies fell 11.25, or 1.56 percent, to 709.19.
Overseas, Britain's FTSE 100 fell 1.91 percent, Germany's DAX index slid 0.64 percent, and France's CAC-40 fell 1.98 percent. Japanese financial markets were closed Tuesday for a national holiday.
Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.
Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained some ground after being hard hit Monday.
After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing -- and also about resistance to the plan in Congress.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.
Traders grew nervous, and sent the stock market lower, as the officials faced questions about whether the government's planned response was appropriate. Sen. Chuck Schumer, D-N.Y., for example, asked whether $150 billion might be adequate to get the program started if investors were told more money could be added if necessary.
The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.
"There's skepticism about whether the $700 billion number is the right number," said Jim Herrick, manager and director of equity trading at Baird & Co.
Bernanke told the Senate Banking Committee Congress risks triggering a recession if it doesn't act on the plan. He said inaction could leave a range of businesses unable to borrow the money while consumers could find it impossible to finance big purchases like cars and homes.
While financial markets showed uneasiness as investors listened to the testimony, there wasn't the level of fear and volatility that dominated Monday's trading.
Demand for short-term Treasurys remained high. The yield on the 3-month T-bill fell to 0.79 percent from 0.88 percent on Monday; last week, it was around zero after investors flooded money into T-bills as the credit markets seized up. That spurred government officials to propose a debt buyout plan.
The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.80 percent from 3.85 percent late Monday.
The dollar, whose decline Monday drove some of the frenetic trading in other markets, regained some of its lost ground against the euro, while gold prices declined after starting the week with a big advance.
The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180. With Monday's 370-point decline, the blue chips are down 534 points, or 4.69 percent, for the week.
Broader stock indicators also fell Tuesday. The Standard & Poor's 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.67, or 1.18 percent, to 2,153.34.
Investors also were watching oil prices after anxiety over the government bailout and a huge short-covering rally pushed crude to the biggest one-day gain.
Light, sweet crude for November delivery fell $2.76 to settle at $106.61 on the New York Mercantile Exchange. The October contract, which expired Monday, surged as much as $25.45 to $130 before falling back to settle at $120.92, an advance of $16.37. While that gain was due to technical market dynamics, the price of oil has moved higher over the past week amid increasing concerns about the U.S. financial system.
"We're going to see this volatility for a while even after this package passes because I think we're still facing a fundamental slowdown in the economy worldwide which is going to have some impact on earnings," said J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners.
Financial stocks finished mixed as some investors worried that the government's plan could prove inadequate to save some banks. Should the government pay too little for assets some banks might be forced to book ruinous write-offs and risk going under.
Bank of America Corp. fell 85 cents, or 2.5 percent, to $33.30, while Washington Mutual Inc. fell 13 cents, or 3.9 percent, to $3.20.
Some energy names lost ground as oil declined. Occidental Petroleum Corp. fell $4.08, or 5 percent, to $77.16 and XTO Energy Inc. declined $1.14, or 2.2 percent, to $51.30.
In addition, some industrial stocks slid as investors worried about the well-being of the global economy. Aluminum maker Alcoa Inc. fell $1.21, or 4.5 percent, to $25.59. Seed company Monsanto Co. fell $4.85, or 4.2 percent, to $112.14.
Some technology stocks advanced as investors looked for areas outside the financial, energy and industrial sectors. Computer chip maker Intel Corp. rose 13 cents to $18.63, while Sprint Nextel Corp. rose 27 cents, or 4.2 percent, to $6.77.
Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to 5.11 billion shares, compared with 5.22 billion traded Monday.
The Russell 2000 index of smaller companies fell 11.25, or 1.56 percent, to 709.19.
Overseas, Britain's FTSE 100 fell 1.91 percent, Germany's DAX index slid 0.64 percent, and France's CAC-40 fell 1.98 percent. Japanese financial markets were closed Tuesday for a national holiday.
Tuesday, September 23, 2008
Bailout debate mulls making Wall Street pay
NEW YORK (Reuters) - The planned $700 billion bailout to shore up the battered U.S. financial system looked set to drag into next week as Washington lawmakers haggled over how exactly they could make Wall Street pay for its rescue.
Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work.
"The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?"'
A day after America's last two big investment banks, Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News), ended Wall Street's swashbuckling era by securing Federal Reserve approval to become commercial banks, all eyes shifted to Washington.
U.S. lawmakers and Bush administration officials were hammering out details of a deal they hope will end the worst U.S. financial crisis since the Great Depression.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke start two-days of congressional hearings on Tuesday to hasten approval of the bailout.
With the economy the No. 1 issue in a U.S. presidential election that is about six weeks away, lawmakers want a plan in place quickly, fearing delay could send markets reeling again.
But with one-third of the U.S. Senate and the entire U.S. House of Representatives up for re-election on November 4, lawmakers will want to sound tough on such hot-button issues as the pay of reckless executives.
"We are not sending a blank check to Wall Street," House Speaker Nancy Pelosi said after holding bipartisan talks.
With so many ideas being floated in Washington on Monday, one congressional aide who asked not to be identified likened the scene to a "Turkish bazaar of public policy ideas."
The crisis has unsettled world markets, and Group of Seven finance ministers and central bank heads promised "heightened close cooperation" to safeguard the global economy.
The latest jitters came after the deal late Sunday scrapped the investment bank model synonymous with Wall Street, ensuring Goldman Sachs Group Inc and Morgan Stanley will avoid the fate of rivals that collapsed or were bought in the brutal meltdown of recent weeks.
Morgan Stanley went a step further, striking a deal with Japan's largest bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), on Monday to spend as much as $8.5 billion for about one-fifth of the prestigious 73-year-old investment bank, sending Morgan's shares higher before closing down.
ANGER AT BAILOUT
After Monday's talks, U.S. Rep. Barney Frank, a top Democrat, said the U.S. government would take equity in the companies seeking a bailout. But the U.S. Treasury is against that idea, sources close to Treasury told Reuters.
The White House said it agreed to an oversight board to monitor the bailout, which Democrats had pushed for. And Frank said there was also agreement that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But lawmakers and Treasury officials were at odds on the emotional issue of whether executives at the companies in need of rescue must agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.
Earlier, U.S. President George W. Bush said, "Failure to act would have broad consequences far beyond Wall Street."
But U.S. Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, voiced outrage at the notion of any bailout without a cap on executive pay.
"The (Bush) administration's plan ... would enrich the Wall Street executives whose reckless investments caused the financial crisis," the powerful California Democrat said. "The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."
Even some Republicans came out against the bailout.
Alabama Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he feared the bailout was "neither workable nor comprehensive."
"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.
Sen. Chuck Hagel, a Nebraska Republican, told Reuters after a meeting of fellow Senate Banking Committee members, "I suspect there will be opposition. We're not there. We don't even have a product yet."
South Carolina Republican Sen. Jim DeMint called the Bush plan "completely unacceptable."
The uncertainty caused stocks to lose most of the gains seen on Friday, when word of the plan sparked Wall Street's best one-day gain since 1987. The S&P 500 index (^SPX - News) dropped 3.8 percent.
Buoyed by the dollar's near 2 percent decline, U.S. crude oil futures soared $16.37 to settle at $120.92, the biggest ever jump in a trading session. At one point, oil was up a stunning $25.45, or 24.3 percent.
In a crisis that has lurched from issue to issue since the U.S. economy first showed weakness and home prices began to tumble last year, prompting a credit crunch and the collapse of investment banking, some wondered where it would end.
"The thing that scares me is the breadth of it," said Robert MacMahon, managing director for restructuring at GE (NYSE:GE - News) Corporate Lending.
Democrats, who control both chambers of Congress, pushed for changes to the plan on concerns that it could expand the powers of the executive branch without adequate oversight -- a frequent Democratic criticism of the Bush administration.
GLOBAL CRISIS
The crisis is threatening global markets. Central banks from Europe to Japan sought to shore up banks by injecting money into the banking system. (ID:nLM163631). Even in the oil-rich Gulf region, the crisis was felt.
The United Arab Emirates Central Bank launched its first-ever emergency funding facility to help fund banks as global lending between institutions shriveled.
The Fed's agreement to convert the once high-flying Goldman and Morgan Stanley investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets and avoid a deep recession.
Both Goldman and Morgan will now face a thicket of new regulations, which will bolster their resources but also curb the spectacular profit growth that made investment bankers among the highest paid in the nation.
The rescue came together after seismic shifts on Wall Street that saw Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News) file for bankruptcy, Merrill Lynch & Co Inc (NYSE:MER - News) agree to sell itself to Bank of America (NYSE:BAC - News), and the Fed stage an $85 billion rescue of American International Group Inc (NYSE:AIG - News).
AIG shares gained 23 percent on Monday on reports its investors were hatching a plan to prevent the insurer from falling into government ownership, by repaying the Fed's loan.
Goldman and Morgan Stanley were the last of the big five investment banks that shaped 20 years of Wall Street history after Bear Stearns collapsed earlier this year.
Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work.
"The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?"'
A day after America's last two big investment banks, Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News), ended Wall Street's swashbuckling era by securing Federal Reserve approval to become commercial banks, all eyes shifted to Washington.
U.S. lawmakers and Bush administration officials were hammering out details of a deal they hope will end the worst U.S. financial crisis since the Great Depression.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke start two-days of congressional hearings on Tuesday to hasten approval of the bailout.
With the economy the No. 1 issue in a U.S. presidential election that is about six weeks away, lawmakers want a plan in place quickly, fearing delay could send markets reeling again.
But with one-third of the U.S. Senate and the entire U.S. House of Representatives up for re-election on November 4, lawmakers will want to sound tough on such hot-button issues as the pay of reckless executives.
"We are not sending a blank check to Wall Street," House Speaker Nancy Pelosi said after holding bipartisan talks.
With so many ideas being floated in Washington on Monday, one congressional aide who asked not to be identified likened the scene to a "Turkish bazaar of public policy ideas."
The crisis has unsettled world markets, and Group of Seven finance ministers and central bank heads promised "heightened close cooperation" to safeguard the global economy.
The latest jitters came after the deal late Sunday scrapped the investment bank model synonymous with Wall Street, ensuring Goldman Sachs Group Inc and Morgan Stanley will avoid the fate of rivals that collapsed or were bought in the brutal meltdown of recent weeks.
Morgan Stanley went a step further, striking a deal with Japan's largest bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), on Monday to spend as much as $8.5 billion for about one-fifth of the prestigious 73-year-old investment bank, sending Morgan's shares higher before closing down.
ANGER AT BAILOUT
After Monday's talks, U.S. Rep. Barney Frank, a top Democrat, said the U.S. government would take equity in the companies seeking a bailout. But the U.S. Treasury is against that idea, sources close to Treasury told Reuters.
The White House said it agreed to an oversight board to monitor the bailout, which Democrats had pushed for. And Frank said there was also agreement that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But lawmakers and Treasury officials were at odds on the emotional issue of whether executives at the companies in need of rescue must agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.
Earlier, U.S. President George W. Bush said, "Failure to act would have broad consequences far beyond Wall Street."
But U.S. Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, voiced outrage at the notion of any bailout without a cap on executive pay.
"The (Bush) administration's plan ... would enrich the Wall Street executives whose reckless investments caused the financial crisis," the powerful California Democrat said. "The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."
Even some Republicans came out against the bailout.
Alabama Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he feared the bailout was "neither workable nor comprehensive."
"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.
Sen. Chuck Hagel, a Nebraska Republican, told Reuters after a meeting of fellow Senate Banking Committee members, "I suspect there will be opposition. We're not there. We don't even have a product yet."
South Carolina Republican Sen. Jim DeMint called the Bush plan "completely unacceptable."
The uncertainty caused stocks to lose most of the gains seen on Friday, when word of the plan sparked Wall Street's best one-day gain since 1987. The S&P 500 index (^SPX - News) dropped 3.8 percent.
Buoyed by the dollar's near 2 percent decline, U.S. crude oil futures soared $16.37 to settle at $120.92, the biggest ever jump in a trading session. At one point, oil was up a stunning $25.45, or 24.3 percent.
In a crisis that has lurched from issue to issue since the U.S. economy first showed weakness and home prices began to tumble last year, prompting a credit crunch and the collapse of investment banking, some wondered where it would end.
"The thing that scares me is the breadth of it," said Robert MacMahon, managing director for restructuring at GE (NYSE:GE - News) Corporate Lending.
Democrats, who control both chambers of Congress, pushed for changes to the plan on concerns that it could expand the powers of the executive branch without adequate oversight -- a frequent Democratic criticism of the Bush administration.
GLOBAL CRISIS
The crisis is threatening global markets. Central banks from Europe to Japan sought to shore up banks by injecting money into the banking system. (ID:nLM163631). Even in the oil-rich Gulf region, the crisis was felt.
The United Arab Emirates Central Bank launched its first-ever emergency funding facility to help fund banks as global lending between institutions shriveled.
The Fed's agreement to convert the once high-flying Goldman and Morgan Stanley investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets and avoid a deep recession.
Both Goldman and Morgan will now face a thicket of new regulations, which will bolster their resources but also curb the spectacular profit growth that made investment bankers among the highest paid in the nation.
The rescue came together after seismic shifts on Wall Street that saw Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News) file for bankruptcy, Merrill Lynch & Co Inc (NYSE:MER - News) agree to sell itself to Bank of America (NYSE:BAC - News), and the Fed stage an $85 billion rescue of American International Group Inc (NYSE:AIG - News).
AIG shares gained 23 percent on Monday on reports its investors were hatching a plan to prevent the insurer from falling into government ownership, by repaying the Fed's loan.
Goldman and Morgan Stanley were the last of the big five investment banks that shaped 20 years of Wall Street history after Bear Stearns collapsed earlier this year.
Monday, September 22, 2008
U.S. Stocks Fall, Led by Regional Banks; Regions, M&I Tumble
Sept. 22 (Bloomberg) -- U.S. stocks fell following the biggest two-day rally since 1987, dragged down by regional banks, on concern smaller lenders are unlikely to profit from the government's $700 billion bailout of the financial system.
Regions Financial Corp., Alabama's biggest bank, tumbled 17 percent and Marshall & Ilsley Corp., Wisconsin's largest, dropped 21 percent after Merrill Lynch & Co. said the Treasury's proposal may accelerate credit losses at small and mid-sized banks by forcing them to write down real-estate assets. D.R. Horton Inc. and Lennar Corp. led declines among all 15 homebuilders in Standard & Poor's indexes. Ford Motor Co. and American Airlines' parent AMR Corp. lost more than 5 percent as oil had its biggest four-day gain since 2000.
The S&P 500 lost 17.85, or 1.4 percent, to 1,237.23 at 10:36 a.m. in New York. The Dow Jones Industrial Average slid 131.02 to 11,257.42. The Nasdaq Composite Index decreased 28.63, or 1.3 percent, to 2,245.27. Three stocks retreated for each that rose on the New York Stock Exchange.
``They really haven't changed the economic fundamentals at all,'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $18 billion. ``We still have a debt-laden U.S. consumer facing falling employment. That's going to be overhanging our economy for some time.''
Regionals Pare Rally
The S&P 500 Regional Banks Index slumped 7.4 percent today as all 12 of its companies declined. The group rallied 101 percent from its July 15 low through Sept. 19, more than three times a measure of large-cap financial companies in the index. Zions Bancorp., the Salt Lake City-based lender with operations in 10 Western states, led regionals with a 163 percent advance, while Columbus, Ohio-based Huntington Bancshares Inc. climbed 143 percent.
The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the S&P 500 up 8.5 percent in the final two days of last week.
For Barclays Global Investors' Russ Koesterich, Treasury Secretary Henry Paulson's move to shift the burden of subprime- mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''
Two-Day Rally
The S&P 500's rally at the end of last week followed a rout that began when Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Bank of America Corp. and the U.S. took control of American International Group Inc.
The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders.
More than $500 billion in losses at banks stemming from the first nationwide drop in home prices since the 1930s has pushed the S&P 500 15 percent lower in 2008. U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg.
Bailout Widened
The Bush administration widened the scope of its plan to include assets other than mortgage-related securities. The change to potentially allow purchases of instruments such as car loans and credit-card debt may force an increase in the size of the package as the legislation proceeds through Congress.
Morgan Stanley rallied $3.23 to $30.44. Mitsubishi UFJ will buy 10 percent to 20 percent of the securities firm and decide on a price after conducting due diligence, the Japanese bank said in a statement.
Goldman Sachs Group Inc. slipped 74 cents to $129.06. The announcement that the two firms will become banks paves the way for Goldman and Morgan Stanley, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using borrowed money -- the leverage that led to the undoing of Lehman and Bear Stearns Cos.
Regions Financial Corp., Alabama's biggest bank, tumbled 17 percent and Marshall & Ilsley Corp., Wisconsin's largest, dropped 21 percent after Merrill Lynch & Co. said the Treasury's proposal may accelerate credit losses at small and mid-sized banks by forcing them to write down real-estate assets. D.R. Horton Inc. and Lennar Corp. led declines among all 15 homebuilders in Standard & Poor's indexes. Ford Motor Co. and American Airlines' parent AMR Corp. lost more than 5 percent as oil had its biggest four-day gain since 2000.
The S&P 500 lost 17.85, or 1.4 percent, to 1,237.23 at 10:36 a.m. in New York. The Dow Jones Industrial Average slid 131.02 to 11,257.42. The Nasdaq Composite Index decreased 28.63, or 1.3 percent, to 2,245.27. Three stocks retreated for each that rose on the New York Stock Exchange.
``They really haven't changed the economic fundamentals at all,'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $18 billion. ``We still have a debt-laden U.S. consumer facing falling employment. That's going to be overhanging our economy for some time.''
Regionals Pare Rally
The S&P 500 Regional Banks Index slumped 7.4 percent today as all 12 of its companies declined. The group rallied 101 percent from its July 15 low through Sept. 19, more than three times a measure of large-cap financial companies in the index. Zions Bancorp., the Salt Lake City-based lender with operations in 10 Western states, led regionals with a 163 percent advance, while Columbus, Ohio-based Huntington Bancshares Inc. climbed 143 percent.
The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the S&P 500 up 8.5 percent in the final two days of last week.
For Barclays Global Investors' Russ Koesterich, Treasury Secretary Henry Paulson's move to shift the burden of subprime- mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''
Two-Day Rally
The S&P 500's rally at the end of last week followed a rout that began when Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Bank of America Corp. and the U.S. took control of American International Group Inc.
The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders.
More than $500 billion in losses at banks stemming from the first nationwide drop in home prices since the 1930s has pushed the S&P 500 15 percent lower in 2008. U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg.
Bailout Widened
The Bush administration widened the scope of its plan to include assets other than mortgage-related securities. The change to potentially allow purchases of instruments such as car loans and credit-card debt may force an increase in the size of the package as the legislation proceeds through Congress.
Morgan Stanley rallied $3.23 to $30.44. Mitsubishi UFJ will buy 10 percent to 20 percent of the securities firm and decide on a price after conducting due diligence, the Japanese bank said in a statement.
Goldman Sachs Group Inc. slipped 74 cents to $129.06. The announcement that the two firms will become banks paves the way for Goldman and Morgan Stanley, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using borrowed money -- the leverage that led to the undoing of Lehman and Bear Stearns Cos.
Sunday, September 21, 2008
Economists see financial bailout as necessary
WASHINGTON (AP) -- The economy could suffer a massive hangover from the government's efforts to rescue the financial system in the form of a soaring debt burden. But the alternatives look infinitely worse.
The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.
To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.
The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.
The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms.
And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.
And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.
The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion.
The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.
It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.
Republican John McCain and Democrat Barack Obama are both running for president, making campaign promises about what new programs they will implement once in office, promises that could be severely constrained by the costs of a financial bailout.
The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. And then there is the matter of the country's large trade imbalances which mean the United States has to borrow $2 billion a day from foreigners.
Will foreigners still want to lend as much to the United States if there are concerns that all the borrowing could weaken the dollar's value against other currencies.
But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option.
"It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands.
The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.
The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.
What the administration's plan would do is at least establish a price for the mortgage-backed securities, which at the moment no one wants to own.
Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government -- say 50 cents on the dollar -- and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
"This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody's Economy.com, who has written a book on the mortgage meltdown.
And the final cost to the government?
No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.
In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls.
"Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower."
The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.
To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.
The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.
The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms.
And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.
And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.
The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion.
The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.
It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.
Republican John McCain and Democrat Barack Obama are both running for president, making campaign promises about what new programs they will implement once in office, promises that could be severely constrained by the costs of a financial bailout.
The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. And then there is the matter of the country's large trade imbalances which mean the United States has to borrow $2 billion a day from foreigners.
Will foreigners still want to lend as much to the United States if there are concerns that all the borrowing could weaken the dollar's value against other currencies.
But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option.
"It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands.
The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.
The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.
What the administration's plan would do is at least establish a price for the mortgage-backed securities, which at the moment no one wants to own.
Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government -- say 50 cents on the dollar -- and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
"This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody's Economy.com, who has written a book on the mortgage meltdown.
And the final cost to the government?
No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.
In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls.
"Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower."
Friday, September 19, 2008
US Stocks Skyrocket on Government Rescue Plan, Ban on Short-Selling of Financials-
NEW YORK (AP) -- Wall Street extended a huge rally Friday as investors stormed back into the market, relieved that the government plans to rescue banks from billions of dollars in bad debt. The Dow Jones industrials rose more than 400 points, giving them a massive gain of more than 800 points over two days.
A new ban on short selling, or placing bets that a stock will fall, was likely adding to the market's gains. And Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility.
Treasury Secretary Henry Paulson will be speaking at 10 a.m. Eastern time about the rescue plan, which is expected to help alleviate the year-old credit crisis by removing soured real estate debt from financial institutions' books.
If a plan is put in place to help the banking industry, it could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.
The Federal Reserve said Friday it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to the embattled financial industry.
To help limit the freefall in financial stocks, the Securities and Exchange Commission announced it is temporarily banning the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against company stocks by borrowing its shares, selling them, and pocketing the difference when they fall.
"The federal government has been petitioned by Wall Street to take evasive action in the money markets, the stock and bond markets, to avoid a complete meltdown of the credit system," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co. "Once the credit system melts down, the economy falls. We can hand-ring about if this is the proper thing for the government to do, or if Wall Street pulled the panic button too soon, but that's something for the historians to sort out."
In the first minutes of trading, the Dow Jones industrial average rose 412.31, or 3.74 percent, to 11,432.00.
Broader stock indicators also surged. The Standard & Poor's 500 index rose 50.02, or 4.15 percent, to 1,256.53, and the Nasdaq composite index rose 85.82, or 3.90 percent, to 2,284.92.
A new ban on short selling, or placing bets that a stock will fall, was likely adding to the market's gains. And Friday was a quarterly "quadruple witching" day, which marks the simultaneous expiration of options contracts, an event that often adds to volatility.
Treasury Secretary Henry Paulson will be speaking at 10 a.m. Eastern time about the rescue plan, which is expected to help alleviate the year-old credit crisis by removing soured real estate debt from financial institutions' books.
If a plan is put in place to help the banking industry, it could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc. and the bailout of teetering insurer American International Group Inc.
The Federal Reserve said Friday it will expand its emergency lending and let commercial banks finance purchases of asset-backed paper from money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
And to help calm investors' anxieties, the Treasury Department has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds. Money market mutual funds are typically considered safe, but many investors have been fleeing them due to worries about the funds' exposure to the embattled financial industry.
To help limit the freefall in financial stocks, the Securities and Exchange Commission announced it is temporarily banning the short-selling of nearly 800 financial stocks. Short-selling is the common practice of betting against company stocks by borrowing its shares, selling them, and pocketing the difference when they fall.
"The federal government has been petitioned by Wall Street to take evasive action in the money markets, the stock and bond markets, to avoid a complete meltdown of the credit system," said Joe Battipaglia, market strategist at Stifel, Nicolaus & Co. "Once the credit system melts down, the economy falls. We can hand-ring about if this is the proper thing for the government to do, or if Wall Street pulled the panic button too soon, but that's something for the historians to sort out."
In the first minutes of trading, the Dow Jones industrial average rose 412.31, or 3.74 percent, to 11,432.00.
Broader stock indicators also surged. The Standard & Poor's 500 index rose 50.02, or 4.15 percent, to 1,256.53, and the Nasdaq composite index rose 85.82, or 3.90 percent, to 2,284.92.
Thursday, September 18, 2008
US Market still in negetive @ 10PM IST
Dow 10,596.39 -13.27 -0.13%
Nasdaq 2,088.76 -10.09 -0.48%
S&P 500 1,150.24 -6.15 -0.53%
Nasdaq 2,088.76 -10.09 -0.48%
S&P 500 1,150.24 -6.15 -0.53%
Financial strains ease but Street remains cautious
NEW YORK (AP) -- Financial markets appeared less strained Thursday, but investors were still nervous, seeking safe investments like gold and Treasury bills and showing some reluctance to return to stocks.
The modest moves in stocks were a welcome sign, though the advances the Dow Jones industrial average showed at times did little to offset the 800-point decline the blue chips had logged over the first three sessions this week.
Investors appeared somewhat relieved after the Federal Reserve and other major central banks around the world on Thursday acted in concert to inject as much as $180 billion into global money markets, an attempt to keep the credit crisis from worsening. The Fed added another $55 billion in overnight loans Thursday.
Market participants still appear to be treading carefully to determine how to proceed in what is looking to be the most troubling period for the world's financial system in most investors' memory.
Grinding gears in the world's credit markets have driven up the cost of borrowing for businesses, while investors are also contending with fears that more big-name financial companies could falter. The fear in the markets had led to speculation about the future of such major players as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley. Media reports have been saying that Wells Fargo & Co. and Citigroup Inc. are interested in a possible takeover of Washington Mutual; and a person familiar with the negotiations said Morgan Stanley and Wachovia Corp. are in talks about a possible combination. He spoke on condition of anonmyity because the talks are ongoing.
"We are in uncharted territory," said Linda Duessel, the equity market strategist at Federated Investors. "The seriousness and the size of this fallout has been underestimated from the beginning. It's most disconcerting what's going on in the credit market."
In late morning trading, the Dow Jones industrial average rose 21.01, or 0.20 percent, to 10,630.67.
Broader stock indicators were mixed. The Standard & Poor's 500 index rose 1.03, or 0.09 percent, to 1,155.36, and the Nasdaq composite index slipped 5.01, or 0.24 percent, to 2,093.84.
Monday's 504-point loss in the Dow was its biggest drop since the drop following the September 2001 terror attacks. The blue-chip index is now about 24 percent below its Oct. 9, 2007, record close of 14,164.53.
On Wednesday, the 3-month Treasury bill -- considered one of the safest short-duration assets -- saw demand surge so high that its yield briefly dipped into negative territory for the first time since 1940. Investors are so focused on parking their money in safe assets that they're willing to take very little return on such investments.
The prices for short-duration Treasurys fell from Wednesday's levels. But the yield on the 3-month T-bill was still extremely low at 0.19 percent -- up from 0.2 percent late Wednesday, but well below its yield of 1.60 percent just a week ago.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.44 percent in early Thursday trading from 3.42 percent late Wednesday.
Gold, another safe haven, rose further on Thursday, after posting their largest one-day price jump ever on Wednesday.
Oil is not considered as safe as gold but it, too, has been drawing investors who deem it safer than stocks. Light, sweet crude on the New York Mercantile Exchange rose 55 cents to $97.71 a barrel, after jumping more than $6 a barrel Wednesday.
The dollar fell against most other major currencies.
In economic data, the Labor Department reported that initial claims for unemployment benefits rose by 10,000 last week to 455,000, due primarily to Louisiana's job losses from Hurricane Gustav.
The Philadelphia Fed said its regional manufacturing report improved to a 3.8 in September from a negative 12.7 in August. It marks the first positive reading since November.
In earnings news, FedEx Inc. posted a 22 percent decline in quarterly earnings, as the package delivery company cut costs to offset slowing global growth. The fiscal first-quarter results came in as expected. The stock fell $1.19 to $86.88.
Overseas, Japan's Nikkei stock average dropped 2.22 percent to its lowest closing level in over three years. Hong Kong's Hang Seng index lost 0.03 percent.
In afternoon trading, Britain's FTSE 100 rose 0.81 percent, Germany's DAX index rose 1.13 percent, and France's CAC-40 fell 0.64 percent.
The modest moves in stocks were a welcome sign, though the advances the Dow Jones industrial average showed at times did little to offset the 800-point decline the blue chips had logged over the first three sessions this week.
Investors appeared somewhat relieved after the Federal Reserve and other major central banks around the world on Thursday acted in concert to inject as much as $180 billion into global money markets, an attempt to keep the credit crisis from worsening. The Fed added another $55 billion in overnight loans Thursday.
Market participants still appear to be treading carefully to determine how to proceed in what is looking to be the most troubling period for the world's financial system in most investors' memory.
Grinding gears in the world's credit markets have driven up the cost of borrowing for businesses, while investors are also contending with fears that more big-name financial companies could falter. The fear in the markets had led to speculation about the future of such major players as thrift bank Washington Mutual Inc. and investment bank Morgan Stanley. Media reports have been saying that Wells Fargo & Co. and Citigroup Inc. are interested in a possible takeover of Washington Mutual; and a person familiar with the negotiations said Morgan Stanley and Wachovia Corp. are in talks about a possible combination. He spoke on condition of anonmyity because the talks are ongoing.
"We are in uncharted territory," said Linda Duessel, the equity market strategist at Federated Investors. "The seriousness and the size of this fallout has been underestimated from the beginning. It's most disconcerting what's going on in the credit market."
In late morning trading, the Dow Jones industrial average rose 21.01, or 0.20 percent, to 10,630.67.
Broader stock indicators were mixed. The Standard & Poor's 500 index rose 1.03, or 0.09 percent, to 1,155.36, and the Nasdaq composite index slipped 5.01, or 0.24 percent, to 2,093.84.
Monday's 504-point loss in the Dow was its biggest drop since the drop following the September 2001 terror attacks. The blue-chip index is now about 24 percent below its Oct. 9, 2007, record close of 14,164.53.
On Wednesday, the 3-month Treasury bill -- considered one of the safest short-duration assets -- saw demand surge so high that its yield briefly dipped into negative territory for the first time since 1940. Investors are so focused on parking their money in safe assets that they're willing to take very little return on such investments.
The prices for short-duration Treasurys fell from Wednesday's levels. But the yield on the 3-month T-bill was still extremely low at 0.19 percent -- up from 0.2 percent late Wednesday, but well below its yield of 1.60 percent just a week ago.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.44 percent in early Thursday trading from 3.42 percent late Wednesday.
Gold, another safe haven, rose further on Thursday, after posting their largest one-day price jump ever on Wednesday.
Oil is not considered as safe as gold but it, too, has been drawing investors who deem it safer than stocks. Light, sweet crude on the New York Mercantile Exchange rose 55 cents to $97.71 a barrel, after jumping more than $6 a barrel Wednesday.
The dollar fell against most other major currencies.
In economic data, the Labor Department reported that initial claims for unemployment benefits rose by 10,000 last week to 455,000, due primarily to Louisiana's job losses from Hurricane Gustav.
The Philadelphia Fed said its regional manufacturing report improved to a 3.8 in September from a negative 12.7 in August. It marks the first positive reading since November.
In earnings news, FedEx Inc. posted a 22 percent decline in quarterly earnings, as the package delivery company cut costs to offset slowing global growth. The fiscal first-quarter results came in as expected. The stock fell $1.19 to $86.88.
Overseas, Japan's Nikkei stock average dropped 2.22 percent to its lowest closing level in over three years. Hong Kong's Hang Seng index lost 0.03 percent.
In afternoon trading, Britain's FTSE 100 rose 0.81 percent, Germany's DAX index rose 1.13 percent, and France's CAC-40 fell 0.64 percent.
Wednesday, September 17, 2008
Stocks sink after government bailout of AIG
Wall Street tumbles again after government bails out AIG, Barclays buys Lehman businesses
NEW YORK (AP) -- Wall Street stumbled again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped about 300 points.
The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"
He said the fear gripping the market reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.
The two independent Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.
Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.
The troubles in the financial sector could exacerbate the problems facing the weak U.S. economy, given that individuals and businesses rely on the nation's money centers.
The Commerce Department reported Wednesday that new home construction fell by 6.2 percent in August to 895,000 units, the slowest building pace since January 1991. Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil -- and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
The Dow fell 298.00, or 2.69 percent, to 10,761.02 a day after Wall Street regained some of Monday's nosedive, in which the blue chips fell 504 points. The index is down more than 5 percent on the week, and has fallen more than 23 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
Broader stock indicators also plunged. The Standard & Poor's 500 index dropped 42.68, or 3.52 percent, to 1,170.92, while the Nasdaq composite index fell 76.11, or 3.45 percent, to 2,131.79.
The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.
On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks. On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.
"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The government took other measures Tuesday to help alleviate the turmoil in the markets. The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.
Short-selling is when traders borrow shares of a stock they expect to fall and sell them -- if the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference. Naked short-selling occurs when sellers don't actually borrow the shares before selling them; it's a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.
Bond prices wavered Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.39 percent from 3.43 percent late Tuesday. The dollar was lower against other major currencies, while gold prices rose.
Crude oil rebounded $2.27 to $93.42 a barrel on the New York Mercantile Exchange. Crude has dropped by about $10 a barrel over the past two days due to concerns that troubles in the financial sector will dampen the economy and cause big funds to unwind their commodities bets.
Declining issues outnumbered advancers by nearly 10 to 1 on the New York Stock Exchange, where volume came to 655.9 million shares.
Overseas, Japan's Nikkei stock average rose 1.2 percent after AIG's rescue, but Hong Kong's Hang Seng index lost 3.6 percent.
In afternoon trading in Europe, Britain's FTSE 100 fell 1.37 percent, Germany's DAX index fell 2.25 percent, and France's CAC-40 fell 2.27 percent.
NEW YORK (AP) -- Wall Street stumbled again Wednesday, with anxieties about the financial system still running high even after the government bailed out the insurer American International Group Inc. The Dow Jones industrial average dropped about 300 points.
The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"
He said the fear gripping the market reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.
The two independent Wall Street investment banks left standing -- Goldman Sachs Group Inc. and Morgan Stanley -- remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.
Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.
The troubles in the financial sector could exacerbate the problems facing the weak U.S. economy, given that individuals and businesses rely on the nation's money centers.
The Commerce Department reported Wednesday that new home construction fell by 6.2 percent in August to 895,000 units, the slowest building pace since January 1991. Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil -- and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
The Dow fell 298.00, or 2.69 percent, to 10,761.02 a day after Wall Street regained some of Monday's nosedive, in which the blue chips fell 504 points. The index is down more than 5 percent on the week, and has fallen more than 23 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
Broader stock indicators also plunged. The Standard & Poor's 500 index dropped 42.68, or 3.52 percent, to 1,170.92, while the Nasdaq composite index fell 76.11, or 3.45 percent, to 2,131.79.
The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.
On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks. On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.
"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The government took other measures Tuesday to help alleviate the turmoil in the markets. The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.
Short-selling is when traders borrow shares of a stock they expect to fall and sell them -- if the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference. Naked short-selling occurs when sellers don't actually borrow the shares before selling them; it's a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.
Bond prices wavered Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.39 percent from 3.43 percent late Tuesday. The dollar was lower against other major currencies, while gold prices rose.
Crude oil rebounded $2.27 to $93.42 a barrel on the New York Mercantile Exchange. Crude has dropped by about $10 a barrel over the past two days due to concerns that troubles in the financial sector will dampen the economy and cause big funds to unwind their commodities bets.
Declining issues outnumbered advancers by nearly 10 to 1 on the New York Stock Exchange, where volume came to 655.9 million shares.
Overseas, Japan's Nikkei stock average rose 1.2 percent after AIG's rescue, but Hong Kong's Hang Seng index lost 3.6 percent.
In afternoon trading in Europe, Britain's FTSE 100 fell 1.37 percent, Germany's DAX index fell 2.25 percent, and France's CAC-40 fell 2.27 percent.
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