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Stock Sell-Off Spurs Fears That Slump Will Worsen
Markets Plummet 4 Percent After AIG's Rescue Is Retooled

By Ylan Q. Mui
Washington Post Staff Writer
Tuesday, March 3, 2009

U.S. stock markets plunged 4 percent yesterday to close at the lowest levels in nearly 12 years, sparking fresh fears of a prolonged and more severe decline.

The Dow Jones industrial average tumbled nearly 300 points, or 4.2 percent, to 6763.29, its lowest close since April 1997. The Standard & Poor's 500-stock index fell to a level not seen since 1996, dropping 34 points, or 4.7 percent, to 700.82. The tech-heavy Nasdaq closed down 55 points, or 4 percent, to 1322.85.

"There's little confidence that we're going to get out of this any time soon," said Axel Merk, portfolio manager at Merk Hard Currency Fund. "We're still lacking very clear guidance. All we know is it's going to be very, very expensive."

Stocks began their slide as soon as the markets opened yesterday on news that insurance giant AIG recorded a $61.7 billion loss during the fourth quarter -- the biggest quarterly loss in U.S. corporate history. The firm said it would gain access to another $30 billion in taxpayer money as part of another restructuring of its federal bailout, and its stock ended the day flat at 42 cents a share.

The markets continued an almost steady march downward as the day wore on. The energy sector suffered the largest decline, 7.5 percent, a sign that investors think demand will remain weak and that the economy is far from recovery. Crude oil prices dropped $4.61, or 10.3 percent, to $40.15 a barrel on the New York Mercantile Exchange.

Financial firms finished not far behind, down nearly 6 percent. HSBC Holdings, Europe's biggest bank, was down $6.55, or about 19 percent, to $28.25 a share on the New York Stock Exchange, after the company announced profit plummeted 70 percent and that it cut its dividend. Bank of America was down 32 cents, or 8 percent, to $3.63. Sallie Mae, the nation's largest student lender, dropped 85 cents, or 18.5 percent, to $3.75.

"This is far worse than anything that we've seen, and the disturbing part of this market is the real causes of the break are still deteriorating," said David Dreman, founder of Dreman Value Management.

Markets seemed to shrug off the one piece of positive news yesterday: New government data showed consumer spending increased 0.6 percent in January compared with December, the first rise in six months, driven in part by higher gas prices. Pay raises for federal employees and the military also helped boost personal income by 0.4 percent.

Still, retail stocks were largely down yesterday -- though Family Dollar and Dollar Tree were notable exceptions, finishing up about 1 percent.

"The market is not really taking into consideration any bits of good news," said Peter Cardillo, chief market economist with New York-based Avalon Partners. "It's just an ongoing downward trend."

Yesterday's dramatic losses come after the major indexes lost 4 percent last week. All 30 blue-chip stocks in the Dow closed down yesterday for the second time in less than a month, and the index has lost 23 percent of its value since the year began. Investors are bracing for more bad news later this week when the government releases monthly unemployment data.

"Bottom line is it's economic decay, and [there's] no real catalyst to turn the market around," Cardillo said.

The pain was not limited to the United States yesterday. Overseas, stock markets were hammered by massive sell-offs as well.

Italy's S&P/MIB Index contracted by 6 percent, while Switzerland's major index and Britain's FTSE 100 slid 5 percent. In Asia, Japan's Nikkei index and Hong Kong's Hang Seng were down nearly 4 percent.

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