admin @ Wed, 2008-11-12 20:40
While the market had been pleased by the government's decision weeks ago to buy banks' stock, investors still hoped to see the financial industry relieved of the burden of the mortgage assets whose decline in value helped set off the nation's financial crisis. His comments, which underscored the anxiety that remains about the health of the financial system, sent stocks falling further.
"We're just going through the typical process of testing and retesting," said Matt King, chief investment officer of Bell Investment Advisors. "If we can continue to build higher and higher lows, that's definitely a positive. If the Dow can build a base above 8,100 and bounce off that, we see that as a definite technical positive."
In the last hour of trading _ often the most volatile time of the day _ the Dow shed 340.02, or 3.91 percent, to 8,353.94.
The broader Standard & Poor's 500 index dropped 39.37, or 4.38 percent, to 859.58, and the Nasdaq composite index stumbled 71.59, or 4.53 percent, to 1,509.31.
The Russell 2000 index of smaller companies fell 25.55, or 5.30 percent, to 456.74.
Declining issues outnumbered advancers by about 9 to 1 on the New York Stock Exchange, where volume came to a light 656.80 million shares.
Though Paulson's announcement marks a major shift in the original bailout plan and rattled investors, Wall Street analysts generally believe the Treasury is now on the right path.
"That's really what they should have done originally," said King. "First and foremost, we have to make sure banks are going to survive and then we can worry about lending. This is the quickest and most efficient way to do that."
However, there is some concern that the bailout funds are being depleted rather quickly, said Jason O'Donnell, senior research analyst at Boenning & Scattergood.
"Investors are generally in favor of the emphasis on the capital purchase provisions," O'Donnell said. But, "we're down quickly to a small portion of total funds remaining for other purposes."
Paulson also announced a new goal for the program to support financial markets that supply consumer credit in such areas as credit card debt, auto loans and student loans. He said, "with a stronger capital base, our banks will be more confident" to support economic activity.
Macy's shares dipped 73 cents, or 7.8 percent, to $8.68. Best Buy shares tumbled $1.86, 7.8 percent, to $22.02.
The future of the country's top automakers remained a major concern on the Street as well, as investors waited to see whether the government would put together a bailout plan for General Motors Corp., Ford Motor Co. and Chrysler.
Morgan Stanley, which converted into a bank holding company in September, said it plans to scale back its institutional securities business before the end of the year. The layoffs it plans are in addition to a 10 percent cut made earlier this year to the group.
Morgan Stanley also plans to restructure its money management business by cutting 9 percent of the group's work force. The securities firm employs about 44,000 people worldwide. Morgan Stanley shares fell $1.22, or 8.7 percent, to $12.86.
Meanwhile, American Express Co. is said to be seeking about $3.5 billion from the government to help boost its balance sheet, according to a report in The Wall Street Journal citing people familiar with the situation. AmEx, the No. 4 U.S. credit card issuer, won approval Monday from the Federal Reserve to become a bank holding company, which gives it the ability to grow a large deposit base and access financing from the Fed.
AmEx shares dropped $2.11, or 9.4 percent, to $20.29.
Government bond prices, which did not trade Tuesday because of Veterans Day, moved higher as investors looked for safer investments. The three-month Treasury bill's yield fell to 0.13 percent from 0.22 percent late Monday, and the yield on the benchmark 10-year Treasury note fell to 3.64 percent from 3.76 percent late Monday.
Crude dropped below $57 a barrel Wednesday on the growing realization that global economic growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. Light, sweet crude fell $2.95 to $56.38 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other major currencies, while gold prices dipped.
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