Credit, recession fears slam Wall Street

October 07 12:05:01 PM, Yahoo News

Traders work on the floor of the New York Stock Exchange, October 3, 2008. (Brendan McDermid/Reuters)

Reuters - Stocks slid for a fourth straight day on Monday, leaving the Dow below 10,000 for the first time in four years, on fears the global economy was hurtling into recession despite government efforts to contain the fast-spreading financial crisis.

The steep declines came in the first full session since the U.S. Congress approved a $700 billion bailout of the financial industry, as lending came to a virtual halt and investors shifted their focus to the crumbling outlook for the economy and profits.

But the market cut almost half its losses in the final hour of the session, as traders speculated the sell-off may trigger a coordinated global response to thaw credit markets. The Dow plummeted as much as 800.06 points -- a record intraday point drop for the blue-chip average -- as it slid 7.75 percent to its session low at 9,525.32. By the closing bell, though, the Dow had recovered 430.18 points to end down 3.6 percent. The S&P financial sector sub-index, which had earlier been down more than 8 percent, closed down 4.2 percent.

The energy sector skidded as the price of oil dropped to an 8-month low below $88 a barrel on expectations that a recession will further hamper global fuel demand.

Wall Street's drop was part of a breakneck global sell-off, which led to trading being halted in Russia, Brazil and Peru. The emergency rescue of two big European banks and a move by several European governments to guarantee bank deposits intensified fears that the credit crisis can not be contained.

"We're clearly in the panic zone now. We've tipped over from bear market to panic," said John Schloegel, vice president of investment strategies for Capital Cities Asset Management in Austin, Texas.

"We're past the bailout now and focused back on fundamentals again and the fundamentals don't look good. People are starting to come to grips with third-, fourth- quarter earnings. If the supertanker of the U.S. economy is at a complete standstill, which it might be, that has not been adequately discounted yet," he said.

The Dow Jones Industrial Average fell 369.88 points, or 3.58 percent, to 9,955.50. It was the first time the Dow closed below 10,000 since October 2004.

The Standard & Poor's 500 Index skidded 42.34 points, or 3.85 percent, to 1,056.89, while the Nasdaq Composite Index dropped 84.43 points, or 4.34 percent, to 1,862.96.

For the year to date, the Dow is down about 25 percent, the S&P 500 is down 28 percent and the Nasdaq is down 29.8 percent.

Bank of America EXTENDS SLIDE AFTER BELL

After the closing bell, there was more tough news for the banking sector. Bank of America cut its dividend, unveiled plans to sell $10 billion of new stock and said third-quarter profit was cut in half from a year ago.

Bank of America warned that credit quality continued to weaken during the quarter and said the economy has moved to a "recessionary environment." Shares of Bank of America, which had fallen 6.6 percent to $32.22 during the regular session, fell another 7 percent in after-hours trade.

In the latest development in the reshaping of the U.S. financial landscape, a person familiar with the situation said

Wells Fargo & Co and Citigroup Inc were in talks to end their high-stakes battle over troubled Wachovia Corp. The increasingly bitter dispute, which flared through the weekend, has drawn in U.S. government officials in an attempt to broker a compromise.

Wells Fargo slipped 2.7 percent to $33.64, Wachovia shares dropped 6.9 percent to $5.78 and Citigroup fell 5.1 percent to $17.41.

Among shares of energy companies, Chevron Corp lost 3.2 percent to $76.84. An index of oil services companies fell 7.8 percent. U.S. front-month crude tumbled $6.07, or 6.5 percent, to settle at $87.81 a barrel.

Technology companies, which often have significant overseas exposure, slid sharply. Shares of Oracle Corp, the world's third-largest software maker, fell 6.1 percent to $18.30 on Nasdaq, after German rival SAP AG said it saw business drop off at the end of the third quarter.

Shares of eBay Inc fell 5.5 percent to $17.89 on Nasdaq after the online auctioneer said it plans to cut 10 percent of its work force and spend about $1.3 billion on acquisitions to bolster its online payment and classified units as it tries to counter a weak U.S. economy.

Trading was active on the New York Stock Exchange, with about 1.95 billion shares changing hands, roughly in line with last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 3.45 billion shares traded, sharply above last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by 15 to 1 on the NYSE and on the Nasdaq, by about 6 to 1.

(Reporting by Kristina Cooke; Editing by Jan Paschal)

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