Oct 9, 2008 11:27 pm US/Eastern
Dow Plunges More Than 678 Points, Dips Below 9K
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NEW YORK (CBS) ―
The Dow Jones industrials plunged more than 678 points on Thursday, driving the blue chip index below the 9,000 mark for the first time since 2003. A steep decline in General Motors helped to fuel the decline.
The blue chip index extended its selling to a seventh straight day as investors grapple with worries about the credit markets and the economy.
The selloff came as Standard & Poor's Ratings Services put GM and its finance affiliate GMAC LLC under review to see if its rating should be cut. GM has been struggling with weak car sales in North America.
The action means there is a 50 percent chance that S&P will lower GM's and GMAC's ratings in the next three months.
General Motors Corp. led the Dow lower, falling about 30 percent.
Trading was volatile through much of the day, with the major indexes bobbing up and down. The Nasdaq composite index, with a bevy of tech stocks, showed more lasting gains because of advances by companies like Intel Corp.
But worries about GM capped the periodic advances by the Dow and the S&P as investors grew concerned that weakness in U.S. vehicle sales may emerge elsewhere in the world. GM, one of the 30 stocks that make up the Dow industrials, fell 90 cents, or 13 percent, to $6.01. The stock fell earlier by as much as 21.7 percent to $5.41, its lowest level since December 1950.
While the number of declining stocks outpaced advancers by about 2 to 1 on the New York Mercantile Exchange, the selling appeared far more orderly than earlier in the week and last week when panic about tight lending conditions and the economy seemed to grip trading.
The sluggishness in the credit markets that triggered much of the heavy selling in markets around the world since mid-September appeared little changed Thursday following days of efforts by the Federal Reserve and other central banks to resuscitate lending.
A key benchmark for bank-to-bank loans, The London Interbank Offered Rate, or Libor, for three-month dollar loans rose to rose to 4.75 percent from 4.52 percent on Wednesday. That signals that banks remain hesitant to make loans for fear they won't be paid back and will be short on cash.
The Fed and other leading central banks this week have lowered key interest rates to help unclog the credit markets and stimulate the global economy.
While a rate cut can take up to a year to work its way through the economy, the move was aimed as a boost to investor sentiment. Perhaps adding to that, there were some signs Thursday that corporate earnings might come in better than expected. IBM, one of the 30 stocks that make up the Dow industrials, posted third-quarter results that beat forecasts and affirmed its full-year earnings forecast.
"Until we kind of stabilize I think you're going to see these gyrations for quite some time," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. "We're stuck in a morass and I think it's going to take quite some time to come out of it."
Demand for short-term Treasurys waned, with the yield on the three-month Treasury bill, which moves opposite its price, rising to 0.75 percent from 0.63 percent late Wednesday. Longer-term debt prices also fell, with the yield on the 10-year note rising to 3.79 percent from 3.65 percent late Wednesday.
IBM Corp. rose $1.37, or 1.5 percent, to $91.92 after posting third-quarter results that topped forecasts and the technology company posted affirmed its full-year earnings outlook.
Investors also examined a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. An administration official, who asked not to be identified because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.
Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of all three of the country's major banks as it struggles to contain the troubles there.
Investors also digested a government report that applications for unemployment benefits dropped last week from a seven-year high. The Labor Department's report matched projections, though claims still remain at elevated levels.
Investors also will be watching throughout the session to determine what effect short selling might have now that a three-week ban imposed by regulators has expired. Short sellers place bets that stocks will fall. Some analysts believe the unprecedented ban on short selling - an effort to bolster investor confidence amid the worst financial crisis since the stock market crash of 1929 - did more harm than good at a time of historic market volatility.
(© 2008 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
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