Wall Street sank further today, as concerns about financial companies overcame enthusiasm about the Fed's credit moves.
NEW YORK — Wall Street sank further today, extending its heavy losses as enthusiasm over Federal Reserve efforts to inject confidence into credit markets gave way to concerns about financial companies’ balance sheets.
The Dow Jones industrial average closed down 508.39, or 5.1 percent, at 9,447.11. The drop came a day after the blue chips fell below 10,000 for the first time in four years. The Dow skidded as much as 800 points on Monday before finishing with a loss of 370.
Broader indexes also dove. The Standard & Poor’s 500 index slid 60.66, or 5.7 percent, to 996.23, while the Nasdaq composite index sank 108.08, or 5.8 percent, to 1,754.88.
Federal Reserve Chairman Ben Bernanke warned in a speech today that the financial crisis could prolong the difficulty the economy is facing. Some traders appeared to regard his remarks as a sign that an interest-rate cut could be in the offing, but that did not stanch the losses that built on Monday’s huge drop.
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Investors appeared initially heartened but still very cautious following the Fed’s announcement that it plans to buy massive amounts of corporate debt to jump-start lending in the markets where many companies turn for short-term loans. The evaporation of faith that loans will be repaid has lenders weary and is making it more difficult and expensive for businesses and consumers to borrow.
The Fed’s latest move is designed to lubricate the frozen credit markets whose troubles have spread to other parts of the economy. Still, the measure stops short of a broad interest rate reduction that some investors say is necessary to restore confidence in the market. Other market watchers argue, however, that more focused steps like the Fed’s decision to buy commercial paper are what’s needed.
Some investors remain worried about financial companies like Bank of America, which after the closing bell Monday slashed its dividend and reported that its third-quarter profit fell 68 percent. The stock fell $8.45, or 26.2 percent, to $23.77 and was the one of the steepest decliners among the 30 stocks that comprise the Dow industrials.
A rumor that Mitsubishi UFJ Financial Group was pulling out of a deal to acquire up to 24.9 percent of the voting shares of Morgan Stanley sent the investment bank’s stock tumbling $5.85, or 24.9 percent, to $17.65.
Investors are fearful that financial companies will continue to face cash shortages even with efforts in Washington and by other governments to resuscitate lending.
“I think we have weeks of volatility ahead of us,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group.
She said the write-downs of bad debt at Bank of America are a reminder to investors that troubles within the financial sector remain.
The dollar was mixed against other major currencies, while gold prices fell.
Oil prices rebounded after plunging Monday to an eight-month low on concerns a global recession will undermine demand for crude. Light, sweet crude rose $2.25 to settle at $90.06 a barrel on the New York Mercantile Exchange.
Concerns about the credit markets still fed demand for the relative safety of government debt, though pressures eased. The yield on the three-month Treasury bill, which moves opposite its price, rebounded to 0.80 percent from 0.50 percent late Monday. Demand for short-term Treasurys remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.
Some investors moved into longer-term Treasury bonds, which while still safe don’t draw as much demand as shorter-term debt in times of fear. The yield on the 10-year note fell to 3.49 percent from 3.50 percent late Monday.