US Stocks Plunge; DJIA Below 10000 For First Time Since '04
10/06 10:30 AM
NEW YORK (Dow Jones)--For the first time in almost four years, the Dow Jones Industrial Average dipped below 10000 early Monday as the U.S. government's $700 billion rescue plan and more Federal Reserve liquidity measures failed to halt a global banking crisis.
The plan to buy bad loans was supposed to loosen up short-term lending and stop a domino-run of bank failures and bailouts by alleviating pressures on banks' solvency. So far, no dice. Over the weekend, the Italian government stepped in to bail out a bank there, and Germany agreed to issue a "blanket" guarantee to head off any bank runs from depositors. In addition, Holland nationalized the Dutch operations of Fortis (FRTSF:$23.2300,$0.0000,0.00%) , and a new EUR50 billion financing package was reached for Germany'sHypo Real Estate Holding (HREHY:$10.4900,$0.0000,0.00%) .
Even domestically, there were few buy signals. Short-term overnight interbank lending rates rose, indicating that the immediate problem in getting loans for corporations and some U.S. states wasn't helped by the plan, either.
"You're not going to be able to cure all aspects of (this crisis) in one fell swoop," said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. " Confidence is the main thing right now, and that's the foundation of all we're doing."
Early Monday, the Dow fell 376 points, or 3.7%, to 9948. The last time the Dow closed below 10000 was on Oct. 26, 2004, when it closed at 9888.48, and it hadn't dipped below that mark during a session since Oct. 29, 2004.
Meanwhile, the broad Standard & Poor's 500 lost 50, or 4.5%, to 1050, trading at its lowest level since 2003; the Nasdaq Composite lost 94, or 4.8%, to 1855.
Commenting on the selling Monday, Phil Roth, chief technical strategist for Miller Tabak, said the push on stocks has been a "panicky kind of decline." Even veteran traders say the current market is the toughest they have traded.
Illustrating the elevated fear levels, the CBOE Volatility Index, which reflects premiums paid for protection against market swings, jumped 17% to 52.77, surpassing levels from the worst of the technology bust to hit a record high.
Overseas, the Shanghai Composite fell 5.2% despite the government's pledge to protect against short-sellers. The FTSE 100 recently declined 6% in London, and the Nikkei 225 closed 4.2% lower in Tokyo.
Another reason for stocks weakness recently: A perception that the credit crisis has pushed economies beyond a tipping point and a U.S. recession is breaking the stride of fast-growing economies in Asia and Europe. Oil futures, a barometer of global growth expectations, tumbled $3, or 3.2%, to $91.09 a barrel - within $4 of its 2008 low.
Amid the decline in both stocks and commodities prices in the past month, part of the decreases has come from successive waves of mass selling by long-term holders cutting their losses and retreating to the safety of bonds.
"You reach a pain threshold," said McCorry.
-By Geoffrey Rogow, Dow Jones Newswires; 201-938-5360; geoffrey.rogow@ dowjones.com
-By Rob Curran, Dow Jones Newswires; 201-938-5176; robert.curran@dowjones.com
(Steve Goldstein and Keith Jenkins contributed to this report.)
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=p6N7fvxBgNVlFcXE2xeYCg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
10-06-081030ET
Copyright (c) 2008 Dow Jones & Company, Inc.
