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Stocks head for sharp decline on recession fears
Friday October 24, 8:42 am ET
By Stevenson Jacobs, AP Business Writer
Wall Street heads for big decline as recession fears stir panic, batter world markets

http://biz.yahoo.com/ap/081024/wall_street.html

NEW YORK (AP) -- Wall Street headed for another precipitous drop Friday as fears of a punishing global recession stirred panic among investors and sent world financial markets into a tailspin. The Dow Jones industrial average futures fell 550 points, triggering a halt in selling of stock future contracts.

The massive decline was caused by increasingly grim news from overseas. In Japan, shares of Sony sank more than 14 percent after it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading after it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.

Japan's Nikkei stock average fell a staggering 9.60 percent. In Europe, Germany's benchmark DAX index was down 10.76 percent, France's CAC40 dropped 10 percent while Britain's FTSE 100 sank 8.67 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession.

The dour outlook convinced investors that the world economy is headed for a long and severe downturn despite a raft of government rescue efforts aimed at pulling the financial system from the brink. It also indicated that the tremors caused by the global credit crisis may have only begun to be felt in their true scope and magnitude.

"There's a lot of panic out there today," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "People have been saying that we're in a recession. This is the realization."

Fearing more carnage in world equity markets, big hedge funds and other institutional investors have been pulling out their money en masse in a bid to reduce risk and raise cash -- a process known as deleveraging that only intensifies the selling. Meanwhile, individual investors that have seen their holdings decimated in recent weeks have been yanking money out of mutual funds, adding to the downward pressure on markets.

"I think it would be natural to make an assumption that there are some funds in trouble and that we may see some funds shut down," Fullman said.

Ahead of the market's open, Dow Jones industrial average futures fell the maximum allowed limit of 550, or 6.27 percent, to 8,224. That triggered "circuit breakers" that automatically freeze selling until the market's 9:30 a.m. EDT open. However, traders can still buy stocks and send the market higher.

The Standard & Poor's 500 index futures index was also down the maximum allowed 60 points, or 6.56 percent, to 855.20, and the Nasdaq 100 index futures was down the maximum allowed 85.00, or 6.20 percent, at 1,175.75.

The big drop in futures trading raised the possibility that circuit breakers intended to prevent panic selling could be triggered during regular trading -- something that hasn't happened since 1997.

The thresholds that would trigger a halt in trading are set at a decline of 10 percent, 20 percent and 30 percent in the Dow, based on where that index was at the beginning of the current quarter; that would mean declines of 1,100 points, 2,200 points and 3,300 points, respectively.

If the Dow Jones industrial average falls 1,100 points before 2 p.m., the market will shut down for an hour. If the threshold is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. Trading would stop again if the Dow falls by 2,200 points. If the Dow falls by 3,300 points at any time, trading would be halted for the day.

Gary Townsend, president and CEO of, Hill-Townsend Capital Inc., said a halt in trading was a possibility.

"It's a way of smoothing market activity and making it orderly. No one would like to see it," he said.

Elsewhere in Asia on Friday, Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets and meet redemption needs at home.

The intensifiying gloom over growth expectations is having the added impact of putting small economies and currencies under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.

In Europe, for example, Hungary, Ukraine and Belarus are all, like Iceland, in talks with the IMF to discuss possible loans.

Meanwhile, demand for U.S. Treasurys jumped as investors sought safe places to put their money. The three-month bill, regarded as the safest assets around, yielded 0.72 percent, down from 0.94 percent late Thursday.

The U.S. dollar, meanwhile, plunged below 93 yen, a 13-year low, as traders reacted to dismal U.S. jobs data that spurred speculation the Federal Reserve might cut interest rates. Meanwhile, gold prices plunged.

Light, sweet crude was down $4.64 to $63.20 premarket electronic trading on the New York Mercantile Exchange. The sell-off, another sign that investors fear a severe recession, came despite OPEC's announcement that it will cut production by 1.5 million barrels a day in a bid to shore up sagging prices.

Associated Press writers Carlos Piovano in London, Alex Kennedy in Singapore, Shino Yuasa in Tokyo and Kelly Olsen in Seoul and Sarah Lepro and Stephen Bernard in New York contributed to this report.