By Lynn Thomasson and Michael Patterson
Sept. 16 (Bloomberg) -- U.S. stocks declined, sending the Standard & Poor's 500 Index to its worst two-day slump since July 2002, after a record jump in overnight lending rates and the credit downgrades of American International Group Inc. showed strains on the financial system are intensifying.
AIG sank 70 percent, Goldman Sachs Group Inc. lost 11 percent and Morgan Stanley tumbled 24 percent after the cost of borrowing in dollars more than doubled as banks horded cash. Oil's dip below $91 a barrel exacerbated concern the economy is headed for a recession as General Electric Co. and General Motors Corp. dropped more than 5 percent. The global sell-off erased more than $1.5 trillion in value from equity markets worldwide and sent Russia's Micex Index down a record 17 percent.
``Clearly, we're not out of the woods,'' John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $300 billion, told Bloomberg Television. ``I wouldn't be looking for near-term gains at all.''
The S&P 500 declined 21.47 points, or 1.8 percent, to 1,171.23 at 9:37 a.m. in New York. The Dow Jones Industrial Average fell 155.43, or 1.4 percent, to 10,762.08. Six stocks declined for each that rose on the New York Stock Exchange.
The S&P 500 posted the steepest drop since the September 2001 terrorist attacks and stocks erased more than $600 billion of value yesterday after Lehman Brothers Holdings Inc.'s bankruptcy spurred speculation that credit-market losses may push the U.S. into a recession.
Consumer Prices Drop
Stocks continued their decline even after the Labor Department said the cost of living in the U.S. dropped in August for the first time in almost two years as falling fuel costs and a slowing economy cooled inflation. The government's consumer price index decreased 0.1 percent.
The Federal Reserve announces its interest-rate decision at about 2:15 p.m. in Washington. Futures traders give 76 percent odds that the central bank will shift to 1.75 percent today from 2 percent. The Fed lowered its target for the overnight lending rate between banks seven times from September 2007 through April.
AIG declined $3.35 to $1.41. Its credit ratings were downgraded by S&P and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.
The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs and JPMorgan Chase & Co. to replenish capital. AIG probably has one day to raise the money, New York Governor David Paterson said during an interview with CNBC.
Biggest Profit Decline
Goldman Sachs retreated $15.50 to $120. The largest of the two remaining independent U.S. securities firms posted a 70 percent decline in quarterly profit, the sharpest drop in its nine years as a public company. Goldman Sachs said it remains ``well positioned'' despite turmoil in credit markets.
Morgan Stanley, the only other independent securities firm, lost $7.62 to $24.57.
Financials fell after the cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of AIG led banks to hoard cash.
The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, the British Bankers' Association said. The rate was 2.19 percent a month ago and 2.15 percent last week. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses.
`Uncharted Territory'
``We're in uncharted territory,'' Laszlo Birinyi, who oversees more than $350 million as president of Birinyi Associates Inc. in Westport, Connecticut, said in a Bloomberg Television interview. ``There's no real historic precedent for what we're going through.''
Washington Mutual Inc. dropped 24 percent to $1.52. The biggest U.S. savings and loan had its credit rating cut to junk by S&P because of the deteriorating housing market. WaMu has reported $6.3 billion of losses in the last three quarters due to soured mortgages.
Crude for October delivery lost as much as 5.4 percent to $90.55 a barrel. Exxon Mobil Corp. fell 1.2 percent to $72.40. Chevron Corp. retreated 2.1 percent to $78.40.
``There's a recession still ahead of us and it exacerbates the credit crunch and puts a further damper on investor and consumer psychology,'' said David Joy, who helps oversee about $149 billion as chief market strategist at RiverSource Investments in Boston.
Dell Inc. dropped 9.2 percent to $16.33 after the second- biggest personal-computer maker predicted ``further softening'' in demand this quarter and said it will record expenses to trim payrolls.
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
Posts
No comments:
Post a Comment