Dow falls to lowest point since '97

Average closes below 7,000 amid bad news from AIG, Buffett

March 03, 2009|By Martin Zimmerman | Martin Zimmerman,Los Angeles Times

Stocks took another steep dive yesterday as the Dow Jones industrial average fell below 7,000 for the first time since 1997 on signs of further turmoil among financial companies, including AIG and HSBC Holdings, and a downbeat report from investment guru Warren Buffett.

The Dow industrials plunged 299.64 points, or 4.2 percent, to 6,763.29. It was the first time the widely followed market gauge - which includes such well-known companies as GE, IBM and Coca-Cola - had closed below 7,000 since May 1997.

The broader Standard & Poor's 500 index fell 34.27 points, or 4.7 percent, to 700.82, while the tech-heavy Nasdaq shed 54.99 points, or 4 percent, to close at 1,322.85.

"There's a real panic in the markets, with some people wanting to buy long-term insurance at any price," Peter Sorrentino, money manager at Huntington Asset Advisors in Cincinnati, told Bloomberg News. "People have lost hope."

Stocks moved lower from the opening bell after faltering insurer American International Group Inc. reported a $61 billion fourth-quarter loss, the largest quarterly loss in U.S. corporate history. The federal government said it would provide an additional $30 billion to AIG, which already has received more than $150 billion in government aid.

The renewed effort to prop up AIG, coupled with continued problems at other financial giants such as Bank of America Corp. and Citigroup Inc., are leading many investors to question whether the government's efforts to bail out the financial system are working, analysts said.

Meanwhile, Banking giant HSBC Holdings said yesterday that it will shutter much of its U.S. consumer lending business and raise $17.7 billion from shareholders after reporting a 70 percent drop in profit for 2008.

The bank said it will shut down the branch network of its HSBC Finance arm in the U.S., leaving only the credit-card business to continue operating. The closures will result in 6,100 job losses.

The business, named HFC and Beneficial, has 800 branches in 46 states, including Maryland. A spokeswoman did not provide how many employees would be affected in Maryland, which has offices in Owings Mills, Glen Burnie, Columbia and elsewhere.

Investors were also digesting Buffett's annual letter to shareholders of his insurance and investment company Berkshire Hathaway Inc., which Buffett said had its worst year in 2008.

In his letter, which he released during the weekend, Buffett said he expected the economy to be "in shambles" throughout 2009 and "probably well beyond." Berkshire's stock dropped 5.2 percent.

Early in the day, there was some mildly positive economic news in a report that manufacturing in the U.S. contracted in February at a slower pace than the month before. Another report showed consumer spending rose more than expected in February after six consecutive declines.

The reports helped stabilize stock prices momentarily but weren't enough to reverse the downward slide as investors continue to grope for the bottom of both the market and the economy.

Sun news services contributed to this article.

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