The Dow dropped below the 9,000 mark for the first time in five years.
NEW YORK — Stocks stepped up their selling in the final hour of trading today, with the Dow Jones industrial average closing down nearly 680 points and dropping below the 9,000 mark for the first time in five years.
Stocks fell sharply after a major credit ratings agency said it was considering cutting its rating on General Motors. GM stock led the Dow lower, falling 31 percent.
Boeing, one of the 30 Dow stocks, tumbled $3.29 to close at $44.41 a share, a price not seen since June 2006. Microsoft, also a Dow stock, fell 71 cents to $22.30, about where it stood in May 2004.
The blue-chip index, which closed below 10,000 on Monday, is down nearly 17 percent over the past four trading days.
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The Dow closed down 678.91, or 7.3 percent, at 8,579.19; it lost about 400 points in the last hour of trading.
Broader stock indicators were also down sharply. The Standard & Poor’s 500 index plunged 75.02, or 7.6 percent, to 909.92, and the Nasdaq composite index fell 95.21, or 5.5 percent, to 1,645.12.
The sell-off came as Standard & Poor’s Ratings Services put GM and its finance affiliate GMAC under review to see if its rating should be cut. GM has been struggling with weak car sales in North America.
The action means there is a 50 percent chance that S&P will lower GM’s and GMAC’s ratings in the next three months.
S&P also put Ford Motor on credit watch negative. The ratings agency said that GM and Ford have adequate liquidity now, but that could change in 2009.
GM, one of the 30 stocks that make up the Dow industrials, fell $2.15, or 31 percent, to $4.76.
“The story is getting to be like that movie Groundhog Day,” said Arthur Hogan, chief market analyst at Jefferies & Co. He pointed to the still-frozen credit markets, and Libor, the bank-to-bank lending rate that remains stubbornly high despite the Fed’s recent rate cut.
“Until that starts coming down, you’ll be hard-pressed to find anyone getting excited about stocks,” Hogan said. “Everything we’re seeing is historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It’s not the kind of history you want to be making.”
The Wall Street Journal also reported this afternoon that the U.S. economy has sunk into a recession and government action is critical to stem the damage, according to economists in its latest forecasting survey. Reporting on its Web site, the Journal said that, on average, the 52 economists that it surveyed now expect gross domestic product to contract in the third and fourth quarters of this year, as well as the first quarter of 2009. If that happened, it said, it would be the first time that U.S. GDP has contracted for three consecutive quarters in more than a half century.
On the New York Stock Exchange, declining issues came to nearly 3,000, while fewer than 250 advanced.
The sluggishness in the credit markets that triggered much of the heavy selling in markets around the world since mid-September appeared little changed today following days of efforts by the Federal Reserve and other central banks to resuscitate lending.
Libor, the bank lending benchmark, for three-month dollar loans rose to 4.75 percent from 4.52 percent on Wednesday. That signals that banks remain hesitant to make loans for fear they won’t be paid back.
The Fed and other leading central banks this week lowered key interest rates to help unclog the credit markets and promote lending to help the global economy. While a rate cut can take up to a year to work its way through the economy, the move was aimed as a boost to investor sentiment.
“We’re stuck in a morass and I think it’s going to take quite some time to come out of it,” said Stephen Carl, principal and head of equity trading at The Williams Capital Group.
Demand remained high for short-term Treasurys, a refuge for investors willing to trade modest returns to protect their money. The yield on the three-month Treasury bill, which moves opposite its price, fell to 0.51 percent from 0.63 percent late Wednesday. Longer-term debt prices fell, with the yield on the 10-year note rising to 3.77 percent from 3.65 percent late Wednesday.
Investors across markets were mulling a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. The $700 billion rescue package signed into law last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.
Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of the country’s three major banks as it struggles to contain the troubles there.
Wall Street is also looking for any effects of short selling now that a three-week ban imposed by regulators has expired. Short selling is a technique in which investors borrow shares in a company from a broker and sell them, hoping to buy them back later at a lower price. Essentially, it’s a bet that a stock’s price will fall. Short sellers can lose money if they have to repurchase the stock after it has risen.
Some analysts believe the unprecedented ban on short-selling — an effort to bolster investor confidence — did more harm than good at a time of historic market volatility. They contend that short sellers help the market rally by covering their bets and creating demand for stocks.
“I think the market’s way oversold. But I can’t stand in the way of this falling knife — I’d get sliced open,” said Phil Orlando, chief equity market strategist at Federated Investors. “Investors are just saying, get me out at any price.”
He also said that with the short-selling rule back in play, hedge funds might be shorting again to make up for their forced liquidations.
Volume on the NYSE came to 2.04 billion shares.
Information compiled by Seattle Times staff is included in this report.