NEW YORK (AP) — Wall Street plunged again today, extending an almost relentless downward spiral after problems at Countrywide Financial Corp. confirmed investors’ fears that credit problems are spreading. The market shrugged off the Federal Reserve’s injection of $17 billion into the banking system, and the Dow Jones Industrial Average fell more than 300 points.
Investors’ confidence, already diminished by months of bad news about mortgages and credit, took a further pummeling after Countrywide, the nation’s largest independent mortgage lender, said it was forced to draw on an $11.5 billion credit line to fund operations.
Countrywide fell $4.42, or 20.8 percent, to $16.87 after the mortgage lender borrowed $11.5 billion from a group of 40 banks to fund loans in a move that shows just how deep the lending crisis has become. The company has been slammed as the credit crunch has driven a number of its smaller peers to bankruptcy.
The Dow’s drop pulled the blue-chip index into what’s known on Wall Street as a correction, a 10 percent drop in stock prices from their highs. Since the Dow reached a closing high of 14,000.41 on July 19, it has fallen 1,364 points.
The market seemed unfazed as the New York Fed which carries out the central bank’s market operation announced an overnight repurchase agreement worth $12 billion. This was on top of a 14-day “repo” worth $5 billion announced before the market opened.
Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up. The Fed uses a repo to buy securities from dealers, who then deposit the money into commercial banks.
However, those moves have done little to offset fears about steeper losses for financial institutions squeezed by weeks of volatility that showed no signs of abating. Analysts contend that many institutional investors want the Fed to be even more decisive.
“The concern out there is: How bad are these problems with some of the financials? And everyone is looking for the Fed to aggressively cut rates to bail out the market,” said Peter Dunay, an investment strategist with the New York firm Leeb Capital Management. “The Fed is not eager to cut rates each time the market declines, and they’re sending a message to the market that you might be on your own for a little bit.”
A sell-off overseas offered little reason to try to stanch the bleeding a day after the Dow closed below the 13,000 mark for the first time since April and the Standard & Poor’s 500 Index moved into negative territory for the year.
Adding to the market’s woes was a Commerce Department report showing that construction of new homes fell to the lowest level in more than a decade in July as builders continued to struggle with the steepest housing slump since 1991.
In early afternoon trading, the Dow tumbled 308 points, or 2.40 percent, to 12,553.
The S&P shed 32.54, or 2.31 percent, to 1,374, and the Nasdaq Composite Index dropped 66.27, or 2.70 percent, to 2,393. The Russell 2000 Index of smaller companies fell 13.47, or 1.79 percent, to 738.
Bonds continued their rally as investors fled into safer securities. The yield on the benchmark 10-year Treasury note dropped to 4.61 percent from 4.72 percent late yesterday. Investors have been hoping policy-makers might lower interest rates to help bolster the economy, which is a positive step for Treasurys.
However, St. Louis Fed President William Poole told Bloomberg Television after the closing bell yesterday that it wasn’t necessary for the central bank to consider lowering short-term interest rates before the regularly scheduled meeting of its rate-setting committee next month.
The Fed left rates unchanged at its last meeting at 5.25 percent, where it has stood since last summer. However, policy-makers said during their commentary that inflation continues to be a worry and also recognized the debt and credit crunch for the first time.
Alexander Paris, an economist and market analyst for Barrington Research, warned not to read too much into what Mr. Poole or other Fed governors might say. These days, investors are looking for more action than words out of the central bank.
“Every time there’s a Fed meeting, everybody is going to give speeches afterward they are really just using these people to get their thoughts out,” he said. “Nobody was even expecting a cut in rates last time around, but something more balanced to recognize the fact the economy and credit markets have gotten much weaker.”
Overseas, markets reacted to the declines in the U.S. Britain’s FTSE 100 fell 3.05 percent, Germany’s DAX index fell 1.86 percent, and France’s CAC-40 fell 2.52 percent. In Asia, Japan’s Nikkei stock average fell 1.99 percent. Hong Kong’s Hang Seng Index fell 3.3 percent, while the often-volatile Shanghai Composite Exchange fell 2.1 percent.