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.
