Uneasy Street

Panicky sell-off drags the Dow under 9,000

October 10, 2008|By From Sun news services

NEW YORK - A runaway train of a sell-off turned the anniversary of the stock market peak into one of the worst days in Wall Street history yesterday, driving the Dow Jones industrials down a breathtaking 678.91 points and deepening a financial crisis that has defied all efforts to stop it.

Stocks lost more than 7 percent, $872 billion of investments evaporated, and the Dow fell to 8,579.19 yesterday. When the average crashed through the 9,000 level for the first time in five years in the final hour of trading, sellers had only begun to hit the gas pedal.

As bad as the day was, even worse was the cumulative effect of a historic run of declines: The Dow suffered a triple-digit loss for the sixth day in a row, a first, and the average dropped for the seventh day in a row, a streak not seen since 2002.

The huge sell-off on Wall Street and an escalating global equity crisis sent Asian stocks plunging this morning, 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.

Meanwhile, the United States and Britain appear to be converging on a common solution for the financial chaos sweeping the world, one day before a crucial meeting of financial leaders begins in Washington that the White House hopes will result in a more unified response.

"Right now the market is just panicked," said David Wyss, chief economist at Standard & Poor's in New York. "Nobody wants to take on any risk. Everybody just wants to get their money and put it under the mattress."

It all took place one year to the day after the Dow closed at its record high of 14,164.53. Since that day, frozen credit, record foreclosures, cascading job losses and outright fear have seized the market and sapped 39 percent of its value.

The Standard & Poor's 500 index tumbled 7.6 percent, while the tech-dominated Nasdaq composite index fell 5.5 percent.

Oil prices also extended their recent slide. Crude futures fell during the day, and in aftermarket trading prices edged below $85, a key technical level that traders say could signal another plunge. The $85-a-barrel price is oil's lowest in a year.

In recent days, stocks have rallied early in the day only to fall victim to an avalanche of sell orders in the last hour or so of trading. Analysts said that could be the result of mutual funds, hedge funds and brokerage companies selling shares at the behest of clients who have opted to dump stocks either out of fear of further losses or because they are being forced to raise cash to cope with credit-related issues or margin calls.

Analysts said the expiration Wednesday night of a ban on short selling of many financial stocks might have contributed to the sell-off.

Central bankers are desperately trying to stem the credit crisis that is engulfing global stock markets. Steps have included a coordinated interest rate cut this week that proved only a monetary salve for investors' fears. Analysts said yesterday that there was little sign that credit markets were loosening, despite reports that the Bush administration might take ownership stakes in some U.S. banks.

Most of the day was relatively calm, and the trading floor was quieter than usual because of the Jewish holiday of Yom Kippur. Wall Street awoke to news the federal government was brandishing a new weapon against the financial crisis - considering seeking an equity stake in major U.S. banks in order to stabilize them.

But that step appeared to be as ineffectual as the others Washington has rolled out in recent weeks, including a $700 billion bailout of the financial industry, the coordinated interest rate cut by central banks around the world and direct lending by the Federal Reserve to private companies to provide them with short-term cash.

Acquiring a stake in the banks would be yet another startling intervention by the government in the free market, but economists said President Bush was left with little choice because of the credit markets, where tight lending has choked off the everyday cash that is the lifeblood of the economy.

"In normal times, this would be out of the question, but in the present dire situation, I think the government should be employing all the powers that it can," said Sung Won Sohn, an economics professor at California State University, Channel Islands.

The British and American plans, though far from identical, have two common elements: injection of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans.

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