/ 10 October 2008

Global rout, bank woes shake Wall Street

United States stocks tumbled on Friday, sending the benchmark S&P 500 below 900 for the first time in five years, as ebbing appetite for risk fuelled a global share sell-off on fears tighter credit would spawn world recession.

Investors liquidated risky bets, sending stock markets in Asia and Europe into a tailspin, a day after Wall Street sank for a seventh straight session.

Even so, feelings that the sell-off might be overdone helped the market pare steep losses as some investors waded back into beaten-down financials and technology shares.

The short-covering boost didn’t last long, however, and the market began gyrating widely between losses and gains.

”There’s no confidence — there’s an atom or two of confidence returning,” said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. ”We need confidence to return into the banking system and hopefully we can sort our way through this. There’s still the unknown, it’s just at this point bargain hunting.”

The Dow Jones industrial average fell 87,30 points, or 1,02%, to 8 491,89. The Standard & Poor’s 500 Index shed 11,44 points, or 1,26%, to 898,48. The Nasdaq Composite Index declined by 8,36 points, or 0,51%, to 1 636,76.

Shares of Morgan Stanley, a securities firm turned into a bank holding company, plunged nearly 21% to $9,84 after ratings agency Moody’s warned it might cut the company’s long-term debt ratings and those of rival Goldman Sachs.

Goldman Sachs shares slid 10,7% to $90,97 on the New York Stock Exchange.

Investors worry a cut in ratings would further complicate the companies’ ability to raise capital.

Shares of General Electric rose more than 4% to $19,71 after the company, an economic bellwether and a Dow component, posted a slide in quarterly profits that matched its recently cut forecast.

A pullback in the cost for banks to borrow overnight dollars from, or among, each other tempered some market anxiety but the cost to borrow dollars over three months shot higher again, indicating credit markets effectively remain jammed up.

In Asia, Japan’s Nikkei tumbled 9,6%, while in Europe major indexes traded down more than 7%. — Reuters