Dow Drops 3.2 Percent As Financial Worries Rise

Investors are digesting the Senate's overwhelming approval of a $700 billion financial rescue package, which now moves to the House. The AP's Bonny Ghosh reports. Video by AP
By Heather Landy
Special to The Washington Post
Friday, October 3, 2008

NEW YORK, Oct. 2 -- U.S. stocks plunged yesterday, along with oil, metals and corn prices, as fears mounted that the economy will suffer regardless of whether the $700 billion financial rescue plan wins congressional approval today.

The Dow Jones industrial average dropped 3.2 percent, or 348.22, to 10,482.85. The broader Standard & Poor's 500-stock index declined 4 percent, or 46.78, to 1114.28, with 218 stocks in the index down 5 percent or more. The technology-heavy Nasdaq composite index fell 4.5 percent, or 92.68, closing at 1976.72.

Agriculture, metals, construction, steel and industrial stocks were among the session's worst performers as new government data showed weak factory orders and a spike in jobless claims. The reports added to anxieties over the health of the broader economy, which could be compromised even if the bailout plan wins a House vote and prompts banks to start loosening lending.

"What's dawning on the market is that the economy, which was getting weaker anyway, is descending rapidly. We are clearly now in a recession," said private-equity financier Steven Rattner, who runs Quadrangle Group.

Crude oil for November delivery dropped 4.6 percent, or $4.56, to $93.97 a barrel on the New York Mercantile Exchange. Gold fell 5 percent, while silver dropped 12 percent and corn prices declined 5.6 percent.

Meanwhile, spreads on credit-default swaps widened, which investors took as a sign of increased concern about the ability of bond issuers to meet their obligations. A credit-default swap is basically an insurance policy for the owner of a corporate bond. It guarantees repayment of an amount equal to the value of a bond in the event of a default by the company that issued it.

"The reality of a slowing global economy overwhelmed any positive sentiment on the Senate's yes vote" Wednesday night, said Tim Backshall, chief strategist at Credit Derivatives Research.

The House is expected to vote Friday on the measure after surprising Wall Street on Monday by rejecting an earlier version of the legislation. The Dow on Thursday came within 120 points of its closing level Monday, when the index had a record one-day point drop of 777.68.

"If this bill passes, you're still going to have an economy that is weakening for at least several months," said Michael T. Darda, chief economist at the trading and research firm MKM Partners.

General Electric, which went to Warren E. Buffett earlier this week for a $3 billion capital injection, raised another $12.2 billion in the stock market Thursday with a share sale priced at a 9.2 percent discount to Wednesday's closing price.

GE shares ended the day just below the $22.25 offering price, down 9.6 percent for the session at $22.15, while shares of Alcoa and Caterpillar fell by more than 8 percent.

Monsanto, the farming chemicals company, posted better-than-expected earnings for the fiscal year ended Aug. 31, but that didn't stop investors from pushing the stock 16 percent lower, to $82.01.

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