U.S. Stocks Drop in Rollercoaster Day; Dow Swings 1,000 Points

By Lynn Thomasson

Oct. 10 (Bloomberg) -- U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.

The Dow posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933, as concern the financial crisis will drag the economy into a recession pushed Morgan Stanley and CBS Corp. down more than 20 percent and Exxon Mobil Corp. more than 8 percent. The Dow recovered from a 697-point tumble and rose as much as 322 points in the last hour as an industry group said the bankruptcy auction of Lehman Brothers Holdings Inc.'s debt won't worsen credit losses.

``At this point, investors are just focusing on getting through the day,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The markets are being driven by emotion and rumor.''

The S&P 500 slipped 10.7 points, or 1.2 percent, to 899.22. The Dow lost 128 points, or 1.5 percent, to 8,451.19. Both gauges extended their weekly drops to 18.2 percent and closed at the lowest levels in 5 1/2 years. The Nasdaq Composite Index added 4.39 points to 1,649.51. Eleven stocks fell for every 10 that rose on the New York Stock Exchange.

Global Rout

European and Asian benchmark indexes posted their worst weekly retreats on record as exchanges in Russia, Indonesia and Ukraine suspended trading in an effort to halt a global rout that has wiped out $25 trillion from global equities this year.

Developing country stocks also posted a record weekly plunge, with the MSCI Emerging Market Index losing 21 percent, led by a 20 percent slide in Brazil's benchmark index and a 16 percent retreat in India.

Comments from President George W. Bush and Italian Prime Minister Silvio Berlusconi did nothing to restore confidence in financial markets and slow the global rout. Officials from the Group of Seven nations gathered for talks in Washington this weekend to discuss the crisis.

The Dow twice recovered from drops of 500 points or more, first in the opening hour and again after 2 p.m. The afternoon rally pushed the 30-stock index as high as 8,901.28 before the gains were surrendered in the final minutes.

The Dow had one bigger weekly retreat in its 112-year history, a 23 percent tumble in 1914 before the average was expanded to 30 stocks in 1928.

Eight-Day Streak

The S&P 500's eight-day losing streak is its longest since 1996. This week's declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended the week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.

The market's ``fear gauge,'' as the Chicago Board Options Exchange Volatility Index is known, climbed to a fifth- consecutive record. The measure, which gauges the cost of using options as insurance against further stock declines, has tripled since the beginning of September.

Almost 3 billion shares changed hands on the floor of the NYSE, more than twice the three-month daily average and the third-highest level since Bloomberg began compiling the data in 1988.

The S&P 500 Energy Index, once the year's best-performing group, slumped 8 percent and lost 19 percent over the past two days. Oil fell below $80 a barrel for the first time in a year on concern the weakening economy will crimp demand.

Energy Slump

Exxon Mobil was the biggest drag on the S&P 500, losing 8.3 percent to $62.36. Chevron Corp. and ConocoPhillips were the second and third biggest drags, losing more than 9 percent each.

Newmont Mining Co., the largest U.S. gold producer, slid 14 percent to $29.23 as bullion tumbled and copper lost 11 percent to cap its worst week in two decades.

Morgan Stanley sank $2.77, or 22 percent, to a 12-year low of $9.68, while Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80 after their credit outlooks were cut to negative by Moody's Investors Service. The review of Morgan Stanley's A1 long-term credit rating affects about $200 billion of debt, Moody's said. The ratings assessor affirmed its Prime-1 grade for Morgan Stanley's short-term debt.

The negative outlook for Goldman Aa3 long-term rating affects $175 billion of debt, and the company's short-term ratings were also affirmed at Prime-1.

Credit Freeze

Credit markets stayed frozen as the cost of borrowing in dollars in London for three months rose for a fourth consecutive day. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 7 basis points to 4.82 percent today, a high for the year, the British Bankers' Association said.

The late-day rally in financial shares came after the International Swaps and Derivatives Association Inc. said Lehman's debt had ``little or no'' unanticipated costs and didn't cause any firms to fail. Sellers of credit-default protection on bankrupt Lehman's debt will have to pay holders more than 91 cents on the dollar after an auction today, setting up the biggest-ever payout in the $55 trillion market.

Citigroup Inc. climbed 9.1 percent to $14.11 paring its decline this week to 23 percent. Bank of America Corp. added 6.3 percent to $20.87 and JPMorgan Chase & Co. rose 14 percent to $41.64.

The S&P 500 Financials Index added 7 percent, reversing a drop of the same size and paring its weekly loss to 11 percent.

Macy's, CBS

Macy's Inc. slid $1.54, or 13 percent, to $9.92. The second-biggest U.S. department-store company cut its annual profit forecast, citing the weakened economy and diminished consumer confidence. Earnings per share this year may decline to $1.30 to $1.50, compared with its earlier projection of $1.70 to $1.85, the retailer said.

CBS Corp. fell the most in at least 17 years, tumbling 20 percent to $8.10. The producer of television and radio shows reported a decrease in third-quarter profit on weakening advertising sales and said it's planning to take a $14 billion charge to reflect the declining value of its assets.

``This is still a Category 4 hurricane,'' said Scott Black, founder and president of Delphi Management Inc. in Boston, which has about $1.4 billion under management. ``I don't really think the market is going to zero, but for people who have cash on the sidelines, they can wait until the storm passes.''

Regionals Rally

Regional banks in the S&P 500 climbed 9.5 percent as a group in early trading and led the market higher for about 10 minutes in early trading on speculation mergers will accelerate and they will gain market shares from larger rivals hit worse by the credit crisis.

M&T Bank Corp. helped paced the gains as Robert W. Baird & Co. raised its rating on the lender whose second-largest shareholder is Berkshire Hathaway Inc. and said the shares are more attractive following a plunge that erased almost a third of the stock's value.

M&T Bank increased 12 percent to $72.75. Marshall & Ilsley Corp., PNC Financial Services Group Inc. and Zions Bancorporation each climbed more than 13 percent.

The New York Stock Exchange and Nasdaq Stock Market may propose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in short-selling, according to three people who have seen a draft of the rule. The plan, which may be submitted as soon as today, would require a stock that closes down more than 20 percent be protected from short sellers for the following three days, the people said.

Earnings Slump

Analysts expect a 7.5 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey published today. Last week, the consensus was for a decline of 5.6 percent. Earnings at financial companies are forecast to slump 74 percent on average in the period.

Europe's Stoxx 600 slumped 7.5 percent, extending this week's decline to 22 percent, the most since records began in January 1987.

The gauge trades at 8.5 times profit, the cheapest since 1981.

``The problem is the rules of valuation no longer exist,'' said Pierre-Yves Gauthier, founding partner of Alphavalue SAS in Paris. ``It's best to remain cautious. The economic slowdown is here. A recession could be heavy.''

To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net;