Dow Sinks 387 on Renewed Credit Concerns

Traders move around the floor of the New York Stock Exchange in the minutes before the closing bell, Tuesday, Aug. 7, 2007. Wall Street overcame disappointment in the Federal Reserve's failure to move toward an easing of interest rates Tuesday, and stocks made a late-day surge as the decision was seen as a sign the economy wasn't threatened by turmoil in the credit markets. (AP Photo/Richard Drew) (Richard Drew - AP)

Bonds rose sharply Thursday as investors again sought the relative safety of Treasurys, pushing down the yield on the benchmark 10-year note to 4.79 percent from 4.89 percent late Wednesday.

The broader Standard & Poor's 500 index fell 44.40, or 2.96 percent, to 1,453.09.

Before Thursday, the S&P had its best three-day winning streak in nearly five years. But the latest pullback was the biggest point drop and percentage loss for both the Dow and the S&P since a market decline on Feb. 27., that owed in part to concerns about subprime loans.

The Nasdaq composite index fell 56.49, or 2.16 percent, to 2,556.49. On Wednesday, it posted its biggest point gain in more than year. And while Thursday's loss was sharp, last Friday's was more severe.

Despite Thursday's slide, the major market indexes are still up for the week, given that stocks rose sharply the first three sessions of the week.

The pullback came after a BNP Paribas unit said it was suspending three funds together worth about $3.79 billion and wouldn't make investor redemptions until it could determine net asset values.

The funds invest in part in subprime mortgages through a process known as securitization. Investment banks bundle together mortgages _ including those from subprime borrowers _ and sell them off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking the steady flow of income from homeowners making their mortgage payments.

"It just kind of brought the fear back," said Douglas Peta, market strategist at J.& W. Seligman in New York.

"In the last couple of days I think people maybe thought that an all-clear had been sounded," he said referring to some of the subprime loan concerns.

"This just highlights that there is not going to be an immediate resolution," he said of the companies that are trying to determine their exposure to bad subprime loans.

Shares of financial companies, which investors have fled recently amid lending concerns, took another beating Thursday. Citigroup Inc. fell 5 percent, as did fellow Dow component JPMorgan Chase & Co.

In another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $2.01, or 5.3 percent, to $35.79, and was the worst performer of the 30 Dow components.