Wall Street takes big hit

Wall Street stock prices nose dived in late trading Thursday, as the Dow Jones fell 679 points, or more than 7 percent — its lowest level in five years — after word spread that General Motors’ credit rating may be cut.

The point decline was the third-worst in Dow history. The worst, 778 points, came less than two weeks ago.

U.S. stocks slid for a seventh day, the longest losing streak for the Standard & Poor’s 500 Index since 1996, as higher lending rates sent a gauge of financial shares to its lowest level in almost 12 years.

The S&P’s 500 index fell 75 points, or 7.62 percent, to close at 909.92. The Nasdaq Composite Index dropped 95 points, or about 5.5 percent, to 1,645.12.

“The sickening slide in the market is unbelievable,” said Jerome Dodson, a fund manager who oversees $1.7 billion at San Francisco-based Parnassus Investments. “Investors are worried about the freezing up of the credit markets.”

The Dow was above 9,200 after 1:30 p.m. and still above 9,000 after 3 p.m. The pressure to sell was so intense that the Dow kept dropping precipitously for 10 minutes after the 4 p.m. closing bell as the day’s losses were tabulated.

In percentage terms, the drop in the Dow exceeded the day the markets reopened after the Sept. 11, 2001, terrorist attacks. It was not close to the 22.6-percent decline on Black Monday in 1987, the last stock market crash.

The sell-off came as S&P’s Ratings Services put GM and its finance affiliate GMAC LLC 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.

GM stocks fell 31 percent on the Dow, its lowest in New York trading in 58 years. Ford fell 58 cents, or 22 percent, to $2.08, an almost a 26-year low.

“These companies certainly wouldn’t choose to file bankruptcy but they could find themselves at a point where their liquidity reached the point where they no longer could run their businesses,” S&P analyst Robert Schulz said on Bloomberg Television. “We think they could be pushed into that.”

The London Interbank Offered Rate, or LIBOR, for three-month dollar loans rose to 4.75 percent from 4.52 percent on Wednesday. Just a month ago, three-month LIBOR was at 2.81 percent.

The sharp LIBOR jump over the past month is worrisome because consumer loans such as adjustable-rate mortgages are tied to the rate meaning that those mortgages could become harder to pay.

Analysts say that continued stress in LIBOR will result in a significant jump in defaults for outstanding non-deliquent adjustable-rate mortgages when they reset.

“Until you get some convincing thawing in the credit markets, the threat of a global recession and a global profits recession remains, and it’s going to be difficult for stocks to build momentum,” said Alec Young, a New York-based equity strategist at Standard & Poor’s.

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