By David Jolly and Bettina Wassener
Monday, March 2, 2009
Investor concerns about financial companies continued to erode the markets on Monday as the Dow Jones industrial average fell below 7,000 for first time since October 1997.
The government on Monday morning agreed to provide another $30 billion to the insurance giant, American International Group, which also reported a $61.7 billion loss. On Friday, Washington took a larger stake in Citigroup.
At about 11:30, the Dow was down 170 points or 2.4 percent, while the Standard & Poor's 500-stock index declined 2.6 percent, but remained about the 700 mark. The Nasdaq fell 2 percent.
Bank shares continued to lead the decline with Bank of America down 14.1 percent while Citigroup and JPMorgan Chase were down 4.3 percent. The S.&P. financial sector was down 4.6 percent overall. The industrial sector had fallen 3.8 percent.
Shares of AIG were 16.6 percent higher on the strength of the latest government assistance.
Crude oil was down $4.08, to $41.66 in New York trading.
Bond prices rose Monday as investors sought safety while the yield on the three-month T-bill fell slightly.
Wall Street followed both Europe and Asia lower. In economic news on Monday, personal spending rose 0.6 percent in January and incomes rose 0.4 percent, while construction spending fell 3.3 percent. Manufacturing contracted in February for the 13th month, but at a slower pace than expected.
In afternoon trading, the Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, slid 3.4 percent, while the FTSE 100 index in London dropped 3.9 percent. The CAC 40 in Paris fell 3.3 percent and the DAX in Frankfurt fell 2.6 percent.
The Tokyo benchmark Nikkei 225 stock average fell 3.8 percent, while the S&P/ASX 200 in Sydney shed 2.8 percent. The Hang Seng index in Hong Kong dropped 3.9 percent.
Financial institutions were again the big losers. BNP Paribas fell 8.5 percent, Royal Bank of Scotland fell 11.6 percent and UBS fell 8 percent in Europe, while Mitsubishi UFJ fell 6.9 percent and Mizuho Financial Group 3.7 percent in Tokyo after the American government moved to take a larger stake in the ailing banking giant Citigroup and the Treasury and Federal Reserve said they would give an additional $30 billion in taxpayer money to AIG
HSBC Holdings, the global British bank, fell 20 percent after saying it would seek to raise nearly $18 billion in new capital from shareholders and shut down its American consumer lending business.
"It's pretty despondent everywhere," said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. "O.K., there are signs that some of the leading indicators have stabilized to some extent, but it's at a very, very low level, and we're not seeing corporate investment picking up, or consumers starting to spend again ? in other words, the traditional mechanisms by which economies come out of a recession are absent at this time."
Economic data and company earnings in recent weeks have eroded hopes that a gradual recovery would start to materialize during the second half of the year. If, as seems increasingly likely, a tangible recovery will not come until 2010 at the earliest, Evans said, "that means corporate earnings will remain extremely soft for quite some time."
"And that in turn means it's pretty clear that there is more value to be had in safe havens like bonds than in equities," he added.
Economic data from Europe added to the dismal atmosphere in the market. The Markit euro zone manufacturing purchasing managers' index sank in February to a record low of 33.5 from 34.4 in January.
On Monday, the Japan Automobile Dealers Association said in a statement that auto sales in February declined 32.4 percent, the seventh consecutive monthly decline.
Japan last week reported that exports in January declined by nearly half from a year ago, while South Korea on Monday released data for February ? the first in the region to issue data for that month ? showing a 17 percent plunge in exports.
Data released Friday showed gross domestic product in the United States fell at an annualized rate of 6.2 percent during the fourth quarter of 2008, the steepest decline since the 1982 recession, suggesting a deeper downturn that will in turn further challenge the battered financial system.
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