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Dow down 312; big sell-off averted

- The Washington Times - Saturday, October 25, 2008

Wall Street stocks staged another broad retreat Friday, but traders and analysts said fears of an even bigger sell-off failed to materialize amid a rare bit of hopeful news about the U.S. housing market and falling prices of oil and other commodities.

The Dow Jones Industrial Average of 30 top stocks marked the 79th anniversary of 1929's "Black Thursday" with a loss of 312.3 points (3.6 percent) to 8,378.95, while the broader Standard & Poor's Index of 500 stocks slid 31.35 points (3.5 percent) to 876.76, recovering from a nearly 6 percent drop earlier in the day.

But the losses on Wall Street were below what future markets had predicted after a much sharper decline in Asian and European markets earlier in the day.

The economic omens had been so bad that the New York Stock Exchange was forced to deny rumors that the opening bell would be delayed and said it was prepared to employed its "circuit-breakers" -- temporarily suspending trading if the Dow lost more than 1,100 points -- with "fervent hope we won't need them."

"It's a pathetic moral victory, but the fact that we're not down 1,000 points is telling me the market's sensing value," John Lynch, a market analyst for North Carolina-based Evergreen Investments, told Bloomberg News.

For the week, the S&P 500 lost 6.8 percent and the Dow fell 5.4 percent, while the Nasdaq Composite Index retreated 9.3 percent. The S&P 500 is down more than 40 percent in 2008, poised for its worst yearly retreat since 1931.

Still, the news, for once, wasn't all bad.

The National Association of Realtors said Friday that sales of existing homes in the United States were up 5.5 percent in September, the biggest monthly increase in five years and a sign that a bottom may be in sight for the battered U.S. housing market. But median sales prices continued to fall to $191,600, down 9 percent from a year ago.

White House spokeswoman Dana Perino hailed the new housing data.

"We're not out of the woods yet by any means," she said, "when it comes to falling house prices and our fundamental problem of an oversupply of houses. But we're getting nearer to the bottom every day."

Oil and other commodity prices were down sharply again yesterday. Oil fell nearly $5 a barrel in early trading on the New York Mercantile Exchange to $63 a barrel, despite the announcement by the Organization of Petroleum Exporting Countries that the cartel would cut production quotas by 1.5 million barrels a day next month. The price of a barrel of oil has fallen by more than half since mid-summer.

Global markets had put a quick halt to Thursday's modest stock rally before trading in the United States even began.

Japan's Nikkei Index lost 9.6 percent, hurt in part by the news that auto giant Toyota suffered its first quarterly drop in sales in seven years. Britain's FTSE 100 Index fell 6.9 percent as the government announced an 0.5 percent drop in GDP for the third quarter of 2008 - the first fall in growth in 16 years.

The bleak British growth numbers pushed the pound below $1.53, the biggest drop in 37 years.

Exchanges in Germany and France suffered comparable losses, while Moscow's battered exchange fell another 14 percent as authorities announced a trading halt through Tuesday. The MSCI index of 25 emerging markets also was off more than 8 percent.

The White House criticized the OPEC production cuts, but analysts said the move may not be enough to reverse the recent sharp drop in energy prices.

Slumping industrial production and consumer demand around the world are frustrating the efforts of oil and other commodity sellers to keep prices high. Futures for oil, gold, copper, lead, palm oil and a broad range of foodstuffs all were down sharply.

The bad omens continued to outweigh the good, as markets struggled to avoid even larger sell-offs in the days to come.

In a clear sign of investor uncertainty, foreign exchange markets saw extreme volatility, with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point, putting added pressure on central banks to respond.

U.S. automaker Chrysler said it will cut up to 5,000 administrative and temporary jobs -- 25 percent of its white-collar work force -- by the end of the year through employee buyouts.

"It's likely that every facility Chrysler has around the world will be affected by these reductions," company spokesman David Elshoff said.

Automakers such as Toyota, Chrysler and General Motors have been hit particularly hard by the global credit crunch, which has fed fears of a deep recession and left even willing customers unable to get car loans.

In another unwelcome sign, the key global measure of credit was up Friday for the second straight day after nearly two weeks of decline. Massive bank bailout plans in the United States, Europe and Asia have focused on trying to push down the London interbank interest rate - the rate banks charge each other for short-terms loans.

The yields on three-month Treasury bills dropped to 0.86 percent, a sign that investors were seeking the safety of the government notes. The yield on the 30-year Treasury note fell to its lowest level in 30 years before rebounding late in the day.

Treasury Department officials said that the Bush administration may be making a second round of capital investments in about 20 more U.S. banks under a $250 billion plan to spur new lending as early as this weekend. Officials announced the first infusion of $125 billion to buy preferred stock in nine of the country's largest banks last week.

The U.S. Treasury is considering taking stakes in insurers as well as regional banks in the next round of capital injections to thaw a freeze of the financial system, a person briefed on the plan said.

There was also reports that the capital program might be expanded to include insurance firms, though Treasury officials did not confirm the reports.

"Capital adequacy has been a major concern among investors" in insurance companies, said Nigel Dally, an analyst at Morgan Stanley in New York, in a note to investors Friday. He added that a government purchase of insurers stock "would help calm these concerns."

And Iceland Friday became the first Western European country to seek a support package from the International Monetary Fund, saying it is asking for $2 billion to stabilize the country's battered finances. The Iceland government was forced to take control of the country's three largest banks because of rising credit and asset problems.