Stocks and dollar tumble while gold soars

Stocks tumbled on Thursday as investors recoiled following a further decline in the dollar, spikes in gold and oil prices and a warning that a Carlyle Group fund is near collapse. The major indexes each lost more than 1%; the Dow Jones industrial average at times fell more than 200 points.

Investors were also getting their first look at a plan outlined by United States Treasury Secretary Henry Paulson to provide stronger regulatory oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.

But talk of regulatory changes appeared to do little to dislodge the glum mood on Wall Street. A government report showing that retail sales fell in February rather than increased, as had been expected, only added to investors’ worries.

The dollar fell below 100 yen during Asian trading on Thursday.
The decline marked the weakest level for the dollar against the Japanese currency in 12 years. The dollar also dropped to fresh lows against the euro.

Despite the dollar weakening, the rand remained on the back foot in late trade. Local negative sentiment also weighed on the rand. 

By 3.45pm the rand was bid at R7,9263 to the dollar from its previous close of R7,8677. It was bid at R12,3542 to the euro from a previous R12,1756 and at R16,1294 against sterling from R15,8715 before.

Gold prices moved above the psychological benchmark of $1 000 an ounce for the first time on Thursday, underscoring investors’ nervousness about the economy and inflation and the weakness in the dollar. The currency’s swoon also helped push oil prices higher.

Carlyle Capital Corporation, which is managed by Carlyle Group, warned late on Wednesday it expects creditors will seize all the fund’s remaining assets after unsuccessful negotiations to prevent its liquidation.

World markets shuddered last week after the Amsterdam-listed fund missed margin calls from banks on its $21,7-billion portfolio of residential-mortgage-backed bonds.

Carlyle’s troubles have added to concern that billions of dollars of depressed mortgage-backed securities will flood the market, reducing their value even further.

In midmorning trading, the Dow fell 205,07, or 1,69%, to 11 905,17.

Broader stock indicators also fell. The Standard & Poor’s 500 index lost 19,33, or 1,48%, to 1 289,44, and the Nasdaq composite index fell 28,5, or 1,27%, to 2 215,37.

Thursday’s decline follows moderate losses on Wednesday and a 416-point rally on Tuesday. Those sharp gains followed a plan by the Federal Reserve—and coordinated with other major central banks—to lubricate near-frozen credit markets with an infusion of as much as $200-billion.

Bond prices rose on Thursday as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3,43% from 3,44% late on Wednesday.

Light, sweet crude traded flat at $109,92 on the New York Mercantile Exchange.

The Fed’s open markets committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0,5 percentage points. However, in the past few weeks investors have been questioning whether another rate cut will help the US economy.

The decline in retail sales for February was unnerving for investors because consumer spending accounts for more than two-thirds of US economic activity. A pullback among consumers worried about jobs, falling home prices or rising energy costs could hasten the economy’s slowdown.

The US Commerce Department said on Thursday that retail sales fell by 0,6% last month. Analysts had expected an increase of 0,2%.

In other economic findings, the Labour Department said that the number of workers seeking unemployment benefits was unchanged last week. Last week, unemployment concerns sent a wave of unease across Wall Street when the government said that employers cut payrolls by 63 000 in February, the second straight month of losses.

Many economists regard back-to-back declines in unemployment as a sure sign the economy won’t be able to avoid recession.

Declining issues outnumbered advancers by more than five to one on the New York Stock Exchange, where volume came to 288,8-million shares.

The Russell 2000 index of smaller companies fell 9,42, or 1,41%, to 657,89.—Sapa-AP, I-Net Bridge

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