Wall Street plunged again on Wednesday as anxieties about the financial system ran high after the government’s bailout of insurer American International Group Inc. left investors with little confidence in many banking stocks. ( Watch )

The Dow Jones industrial average lost about 450 points, giving it a shortfall of more than 800 so far this week.

As investors fled stocks, they sought the safety of hard assets and government debt, sending gold, oil and short-term Treasurys soaring.

The market was more unnerved than comforted by news that the Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 per cent stake in the company, which lost billions in the risky business of insuring against bond defaults.

Wall Street had feared that the conglomerate, which has extensive ties to various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy. However, the ramifications of the world’s largest insurer going under likely would have far surpassed the demise of Lehman.

“People are scared to death,” said Bill Stone, chief investment strategist for PNC Wealth Management. “Who would have imagined that AIG would have gotten into this position?”

He said the anxiety gripping the markets reflects investors’ concerns that AIG wasn’t able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter. Over the past year, companies including Lehman and AIG have sought to reassure investors that they weren’t in trouble, but as market conditions have worsened the market appears distrustful of any assurances.

“No one’s going to be believing anybody now because AIG said they were OK along with everybody else,” Stone said.

The two independent Wall Street investment banks left standing – Goldman Sachs Group Inc. and Morgan Stanley – remain under scrutiny, as does Washington Mutual Inc., the country’s largest thrift bank. Morgan Stanley revealed better-than-expected quarterly results late on Tuesday and insisted that it is surviving the credit crisis that has ravaged many of its peers.

Lehman filed for bankruptcy protection on Monday, and by late on Tuesday had sold its North American investment banking and trading operations to Barclays, Britain’s third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch & Co., the world’s largest brokerage, sold itself to Bank of America Corp. in a quickly arranged plan to sidestep further slides in its stock.

“It’s still uncertain ground we’re treading. We just have to move on a daily basis,” said Jack A. Ablin, chief investment officer at Harris Private Bank.

The Dow fell 449.36, or 4.06 per cent, to 10,609.66, finishing not far off its lows of the session. On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks. On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.

The index is down more than 7 per cent on the week, its worst showing since July 2002. The blue chips have fallen more than 25 per cent since reaching a record close of 14,164.53 on Oct. 9 last year.

Broader stock indicators also fell sharply Wednesday. The Standard & Poor’s 500 index dropped 57.21, or 4.71 per cent, to 1,156.39, while the Nasdaq composite index fell 109.05, or 4.94 per cent, to 2,098.85. About 200 stocks rose on the New York Stock Exchange, while nearly 3,000 fell. The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.

Short-term Treasurys moved sharply higher as investors sought a safe place for at least the near future. There was heavy buying in T-bills, which range from three months to a year in maturities. But the yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.42 percent from 3.43 per cent late Tuesday as longer-term debt fell.

Gold for December delivery shot up as much as $90.40, or 11.6 per cent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session; that was its largest ever one-day gain in dollar terms.

Crude oil that had also skidded lower since midsummer $6.01 to settle at $97.16 a barrel on the Nymex after the government reported a drop in domestic crude and gas inventories. Oil dropped by about $10 a barrel on Monday and Tuesday.

Among financial names getting hit, Goldman Sachs fell $18.51, or 14 per cent, to $114.50 and Morgan Stanley fell $6.95, or 24 per cent, to $21.75. AIG fell $1.70, or 45 per cent, to $2.05.


Courtesy/Source: timesofindia.indiatimes.com

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