After Slight Return, Markets Stumble
Battered Bank Shares and Grim News From GM Trigger Major Sell-Off

By Alejandro Lazo
Washington Post Staff Writer
Friday, March 6, 2009

U.S. stock markets plunged 4 percent yesterday as bank shares faltered and auditors for General Motors, the biggest U.S. automaker, warned that the company might not be financially viable.

The sharp drop came one day after a rally broke a five-day losing streak.

The Dow Jones industrial average closed down 4.1 percent, or 281.40 points, to 6594.44, a new 12-year low. The Standard & Poor's 500-stock index lost 4.3 percent, or 30.32 points, to close at 682.55, its lowest close since 1996. The tech-heavy Nasdaq composite index fell 4 percent, or 54.15 points, to close at 1299.59.

The sharp descent underscored the depth and breadth of the economy's problems. Every stock in the Dow other than Wal-Mart lost ground or closed flat. No sector in the S&P 500 was spared, either, with shares of financial companies leading the carnage, posting a 10 percent decline.

"This is distinctly unlike anything we have seen since World War II," said Philip J. Roth, chief market analyst at New York brokerage Firm Miller Tabak. "The last time the market had a long, straight-line decline was in 1937 and 1938."

Shares of General Motors led the Dow in its fall, plunging 15.5 percent as the Detroit titan said in its annual report that its auditors had raised "substantial doubt" about its ability to keep operating. The company said it might have to seek bankruptcy protection if it cannot restructure.

Shares of Bank of America fell 42 cents, or 11.7 percent, to close at $3.17. Citigroup sank below a dollar during trading and closed down 11 cents, or 9.7 percent, at $1.02.

Stocks plunged at the opening bell yesterday after reports that the Chinese government would probably not provide further stimulus to its economy. News that it might do so had sparked Wednesday's surge.

Thursday's sell-off also came ahead of a much-anticipated unemployment report scheduled for release this morning. The Labor Department yesterday reported that the number of people filing for unemployment benefits last week dropped to 639,000 compared with 670,000 the previous week. The total number of people receiving unemployment benefits is now more than 5 million.

Productivity also declined, with the steepest drops in the manufacturing of autos, appliances and other goods built to last at least three years, the Labor Department said.

New orders for manufactured goods fell in January by 1.9 percent, the sixth consecutive monthly decline, down nearly 20 percent compared with a year earlier, the Commerce Department said.

On the U.S. consumer front, retailers posted declines in monthly sales yesterday as wary Americans continued to keep their wallets closed. Wal-Mart was the exception, reporting a 5.1 percent increase in February sales at U.S. stores open at least a year compared with the same month last year -- a key measure of a retailer's health.

Its rival Target said its same-store sales were down 4.1 percent in February, and those at Macy's dropped 8.5 percent.

Overseas, the European Central Bank said yesterday that the economy of the combined euro nations is expected to contract by 2.7 percent in 2009, a substantial drop from its previous forecast of 0.5 percent. The bank released the new forecasts after cutting interest rates to a record low of 1.5 percent. The Bank of England slashed interest rates by half a percentage point, to 0.5 percent. European markets fell, with the London's FTSE down 3.2 percent and Germany's DAX down 5 percent.

The losses continued today in Japan, where the benchmark Nikkei 225 average fell as much as 3 percent in early trading.

Staff writers Ylan Q. Mui and Annys Shin contributed to this report.

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