- The Washington Times - Tuesday, February 24, 2009

UPDATED:

Investor uncertainty spread throughout Wall Street Monday, pulling the Dow Jones Industrial Average and the broader Standard & Poor’s 500 Index down to their lowest levels in more than 11 years.

All three of the major indexes plunged by more than 3 percent, and the tech-heavy Nasdaq Composite Index fell through the 1,400 level.

At the close, the Dow plummeted 250.89, or 3.41 percent, to 7,114.78, its lowest level since May 7, 1997. The Nasdaq dived 53.51, or 3.71 percent, to 1,387.72. The S&P 500 fell 26.72, or 3.47 percent, to 743.33, its lowest point since April 1997.

The broad sell-off, which accelerated toward the close, hit energy and technology stocks hard.

Investors pounded financial stocks, too, even as government agencies led by the Treasury Department said they would roll out a revamped bank rescue program this week.

Some financial stocks managed to post gains, including Citigroup, which rose 19 cents, or 9.7 percent, to $2.14 amid reports that Washington was negotiating to boost the government’s stake in the huge financial company to as much as 40 percent. The government already has given Citigroup $45 billion from the bailout money that Congress authorized in the fall.

Bank of America Corp. gained 12 cents, or 3.2 percent, to close at $3.91.

Concerns last week that the government would nationalize those banks had pushed the Dow to an 11-year low in Friday trading before it recovered on Obama administration assurances that a nationalization was not in the works.

Wall Street opened higher Monday on those assurances but turned sour early after Yahoo Inc. reported that it plans to reorganize, a sign of more problems across a broad sector of the sagging economy. Then the blue chips started falling.

Markets also reacted badly to a CNBC report Monday that American International Group, the insurance giant that received a $150 billion bailout from the federal government last fall, was in discussions for more financial aid.

AIG is expected to report a loss of $60 billion on March 2, the biggest loss in U.S. corporate history, the cable network said.

The swooning markets “reflect that we’re in a universe of uncertainty,” said Bernard Baumohl, chief global economist of the Economic Outlook Group in Princeton, N.J. “There’s a great deal of anxiety in the market.”

In addition, he said, investors are impatient because the economy has not begun to turn around despite the $700 billion authorized by Congress to bail out the financial industry, President Obama’s $787 billion stimulus package and a $275 billion plan to tackle the housing crisis.

“This is a great experiment, the most unprecedented financial program ever undertaken,” Mr. Baumohl said. “Yet investors don’t know when it will work or even when it will begin to work” to turn around the economy.

“Once investors pick up a hint that the worst is over, then [the economy] will turn around,” he said, but “investors still don’t have confidence that a turnaround in the economy is near.”

“The mere announcement of these programs doesn’t mean the economy is going to turn around next week. What you need, first and foremost, is to get credit flowing again” from the banks.

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