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Industrials Drop 680 After Late Collapse
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Industrials Drop 680 After Late Collapse
By PETER A. MCKAY

The stock market’s collapse accelerated Thursday as bank lending remained stubbornly clogged and investors remained unwilling to hold anything except cash and government debt, no matter how tiny the returns for doing so.
The Dow Jones Industrial Average declined for a seventh straight day, plunging 678.91 points, or 7.3%, to 8579.19. Blue chips last dipped below the 9000 level five years ago. Thursday’s fall was the Dow’s third-worst all time in point terms and 11th worst in percentage terms. During its recent losing run, blue chips have fallen by a startling 20.9% and are down 39.4% from their record high, which was hit exactly one year ago.
New D-Day for the Dow
1:36
Investors will remember Oct. 9, when the Dow peaked above 14,000 in 2007 and then closed 40% lower 12 months later. MarketWatch’s editor in chief Dave Callaway reports. (Oct. 9)
Translating the day’s losses into dollar terms, the Dow Jones Wilshire 5000, a proxy for the total U.S. stock market, lost 2 billion in market capitalization on Thursday, .5 trillion over the last seven trading sessions, and .3 trillion since the all-time high it hit last October.
"This is indiscriminate selling," said trader Todd Salamone, of Schaeffer’s Investment Research, an analysis and asset-management firm in Cincinnati. "Not until there are massive improvements in the credit markets are we likely to see this really end."
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Among the Dow’s components, General Motors shares plunged 31% after the auto maker’s credit ratings and those of its financing unit were put on watch for downgrade by Standard & Poor’s. The Dow’s financial components suffered as well, with Citigroup dropping 10% and Bank of America falling 11.2%. Exxon Mobil shares fell 11.7% after the front-month crude-oil futures contract settled at .59, the lowest settlement since Oct. 23, 2007. Investors worry economic aftershocks from the credit crisis will curb demand for fuel.
Investors are generally skeptical that the vast sums of government money that are being pumped into the financial system will do much to unfreeze the credit markets. Economists fear that with companies frozen out of short-term funding sources, a severe recession could result. Markets are beginning to price in such a scenario, analysts say.
"Every single business in the world needs working capital," said strategist Doug Peta, of the New York portfolio-management firm J. & W. Seligman & Co. "You need to spend money to make something before you can sell it, which is what generates your profits, which is what drives the stock market. That’s why the stress in short-term funding is the crux of the market’s problem right now."
According to data from the British Bankers’ Association, overnight U.S. dollar Libor fell slightly compared to Wednesday’s fixing. But longer-term funding pressures tightened. The key three-month Libor rate rose to 4.75% from 4.52%.
Those rates are key to setting the prices of credit that banks charge their clients, including companies whose activities drive growth in the broader economy.
Other major stock yardsticks plunged. The Nasdaq Composite Index fell 5.5% to 1645.12. The small-stock Russell 2000 tumbled 8.7% to 499.20. The S&P 500 shed 7.6% to close at 909.92. All of its sectors posted big losses, ranging from a 3.3% drop in technology to a 14.4% slide in energy. The S&P financials were off 10.4%.
Strategist Jim Paulsen, of Wells Capital Management in Minneapolis, said the fear that has seized the market lately may be an unintended, self-fulfilling consequence of recent efforts in Washington to pass a 0 billion rescue of firms saddled with illiquid mortgage securities.
"To sell the bailout to the public, everyone from the President on down had to go out and tell people how bad everything was, that the world was coming to an end," said Mr. Paulsen. "Ever since, people’s expectations about the economy have gotten worse and worse and worse, and their reaction to each new action to fix the problems has gotten worse and worse and worse."
Wall Street’s few remaining giants suffered deep share declines on Thursday. Morgan Stanley, which along with rival Goldman Sachs Group abandoned the independent brokerage model a few weeks ago to convert itself into a deposit-taking institution, plunged 26%. Merrill Lynch, which has agreed to be sold to Bank of America, also dropped 26%. Goldman shares were down 10%.
Another company highly dependent on free-flowing credit markets — student-loan giant SLM — declined 19%. Asset manager Legg Mason plunged 25% and bond insurer Ambac Financial Group fell 29%. Insurer Prudential Financial fell 23%. With so many companies experiencing such steep skids, the market’s fear gauges leapt. The Chicago Board Options Exchange Volatility Index soared by 11% to 63.92.
Long-term Treasury prices fell. The 10-year note shed 1-2/32 to yield 3.785%. The 30-year bond was off 1-16/32, yielding 4.121%. The dollar strengthened against major overseas rivals. The euro cost .3654, down from .3667 late Wednesday. One dollar fetched 100.96 yen, up from 99.84 yen.
Peter Cardillo, chief market economist at Avalon Partners, hoped that the 9000 level would hold as a low for the Dow, signaling the crisis of confidence had run its course. Instead, it now appears the bloodletting could continue for days longer, at least.
"It’s getting to a point where it’s every man for himself," said Mr. Cardillo. "When fear reaches that level, you’re getting close to a bottom. But we’re clearly not there quite yet."
—Kevin McKay, Geoffrey Rogow and Rob Curran contributed to this articleWrite to Peter A. McKay at peter.mckay@wsj.com.

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Category: Forex Trading