(CBS/AP) Wall Street has had yet another dismal day Tuesday, extending its heavy losses as investors’ worries about the financial sector wiped out early enthusiasm over the Federal Reserve’s efforts to inject confidence into the credit markets. Trading remained fractious and grew more turbulent in the last hour, with the Dow Jones industrial average losing more than 500 points and all the major indexes falling more than 5 percent.
This latest plunge, which followed a big drop on Monday, came after Bank of America Corp. reported its third-quarter profits fell 68 percent. The market’s gloom was also fed by comments from Fed Chairman Ben Bernanke, who warned that the financial crisis could prolong the difficulty the economy is facing.
The Dow was down approximately 508 points at the closing bell, or 5.11 percent, at the 9,447 level, after falling nearly 370 Monday. The broader Standard & Poor’s 500 index is down 5.73 percent and the Nasdaq composite index is down 5.80 percent.
Credit markets showed some signs of easing as demand for safe-haven investments decreased. Credit markets seized up last month after Lehman Brothers Holdings Inc. declared bankruptcy and the government stepped in to rescue insurer American International Group Inc.
The Fed’s latest move is designed to lubricate the lurching credit markets whose troubles have spread to other parts of the economy. Still, the measure stops short of a broad interest rate reduction that some investors say is necessary to restore confidence in the market. Other market watchers argue, however, that more focused steps like Fed’s decision to buy commercial paper are what’s needed.
“The Treasury stepping into the commercial paper market is good news,” said Peter Cardillo, chief market economist for Avalon Partners. “The Fed is doing everything they can to have confidence return to the markets, and maybe an interest rate cut is next. The central bank is doing what it should be doing as a lender of last resort.”
But some investors remain worried about financial companies like Bank of America Corp., which after the closing bell Monday slashed its dividend and reported that its third-quarter profit fell 68 percent. The stock fell $4.68, or 15 percent, to $27.54 and was the steepest decliner among the 30 stocks that comprise the Dow Jones industrial average.
Investors are fearful that financial companies will continue to face cash shortages even with efforts in Washington and by other governments to resuscitate lending.
Investors are still hoping to see other moves from the Fed to boost confidence. Australia’s central bank lowered interest rates by the largest amount since 1992 in a surprise move, and that reignited hopes that others, including the Fed and European Central Bank, might follow suit.
Though not giving the market a rate cut, the Fed has taken other steps to help unclog the credit markets. On Tuesday, policymakers provided more details about when it will make $900 billion in short-term loans available to squeezed banks.
The loans are made available to banks through auctions. The Fed, in coordination with other countries’ central banks engaged in similar efforts, laid out dates that it will conduct the auctions through the rest of this year.
Concerns about the credit markets still fed demand for the relative safety of government debt, though pressures eased. Demand for short-term Treasurys remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.
Some investors moved into longer-term Treasury bonds, which while still safe don’t draw as much demand as shorter-term debt in times of fear. The yield on the 10-year note fell to 3.52 percent from 3.50 percent late Monday.
Oil prices rebounded after plunging Monday to an eight-month low on concerns a global recession will undermine demand for crude. Light, sweet crude rose $2.36 to $90.17 a barrel on the New York Mercantile Exchange.
Source:
http://www.cbsnews.com/stories/2008/10/07/business/main4505658.shtml
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