WASHINGTON — Stock markets plunged around the world Monday as the U.S. credit crisis continued to spread to Europe, where governments from Brussels to Berlin worked feverishly to shore up banks that are still starved for cash despite Friday’s passage of a $700 billion financial bailout package in Washington.
The Dow Jones Industrial Average plummeted more than 800 points and fell below 10,000 for the first time in four years, while Europe’s Dow Jones Stoxx 600 Index posted its steepest intraday decline since 1987, the MSCI Emerging Markets Index headed for its biggest loss in at least two decades and exchanges in Russia and Brazil were forced to halt trading.
President Bush, speaking in San Antonio on Monday, said the rescue package was designed to unlock the frozen U.S. credit markets “to get money moving again” through the economy. But he added, “We don’t want to rush into this situation and not have the program be effective,” he said. “It’s going to take awhile to restore confidence in the financial system.
“But one thing people can be certain of is that the bill I signed is a big step toward solving this problem.”
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The euro fell the most against the yen since its 1999 debut and oil dropped below $90 a barrel as the credit crisis caused bank bailouts to spread through Europe. French bank BNP Paribas SA agreed to buy parts of Dutch financial giant Fortis for $19.8 billion after a government rescue failed, while German banks and state agencies assembled a $68 billion rescue for Hypo Real Estate Holding AG.
Meanwhile, governments from Germany to Denmark to Greece said they would guarantee all their countries’ bank deposits to try to stop a global rush to move cash to safe havens.
Investors around the world are piling into government bonds to escape the carnage. Two-year Treasury note yields plunged 14 basis points to 1.44 percent in midday trading in New York — below the Federal Reserve’s own benchmark rate for overnight loans to banks.
The Fed took fresh steps to help ease seized-up credit markets, announcing Monday it will begin paying interest on commercial banks’ reserves and will double to $900 billion its loan program to faltering banks.
President Bush is paying close attention to turmoil in global financial markets and U.S. officials are in contact with counterparts overseas, administration spokesman Scott Stanzel said.
“There’s great amount of concern around the world about the global financial system,” Mr. Stanzel told reporters. U.S. officials “are in regular contact” with counterparts overseas “to promote stability in our markets.”
Investors took a bleak view of the future, seeing no end to the crisis in the near term.
“This is a psychologically important moment that we passed below the 10,000 level,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “But, the issues are worldwide. The fact is people are scared and the only thing they’re doing is selling.”
In midmorning trading, the Dow Jones industrial average fell 443.08, or 4.29 percent, to 9,882.30, dropping below 10,000 for the first time since Oct. 29, 2004. At one point, the Dow was down nearly 600.
Broader indexes also tumbled. The Standard & Poor’s 500 index shed 53.12, or 4.83 percent, to 1,046.11; and the Nasdaq composite index fell 101.07, or 5.19 percent, to 1,846.32. The Russell 2000 index of smaller companies dropped 29.31, or 4.73 percent, to 590.09.
There were only 78 advancing stocks on the New York Stock Exchange, compared to 3,080 decliners. Volume came to 512.4 million shares.
In Asia, the Nikkei 225 closed 4.25 percent lower. Europe’s stock markets also declined, with the FTSE-100 down 6.31 percent, Germany’s DAX down 8.29 percent, and France’s CAC-40 down 8.76 percent.
The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.33 percent from 0.50 percent late Friday. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.
Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.45 percent from 3.60 percent late Friday.
Banks’ hesitation to lend to one another and to many businesses and individuals is the result of the bad mortgage debt that the financial rescue is supposed to sweep up. But it’s still unclear how quickly financial institutions will be able to hand that debt to the U.S. government and convince the markets they are healthy again.
There has been some hope that perhaps the Fed, in concert with other central banks, might cut interest rates to help stimulate the economy. With oil prices well off their midsummer highs and indicators pointing to a slower economy, the Fed’s worries about inflation are less than they had been, making it easier to justify a rate cut.
Investors might get some indication about a potential rate cut with several policymakers slated to speak this week. Dallas Fed President Richard Fisher and Chicago Fed President Charles Evans will speak on the U.S. economy on Monday. Federal Reserve Chairman Ben Bernanke is due to speak on Tuesday.
Frederick Dickson, chief market strategist at D.A. Davidson & Co., believes investors are eager for any signs about the well being of the economy.
“Wall Street at this point is shifting its attention from whether Congress was going to act on the emergency stabilization bill to the realization that the economy is slowing significantly faster than most analysts had expected,” he said. “The downturn has shifted from first gear to about third gear in about two weeks.”
Oil prices fell to an eight-month low below $90 a barrel on speculation that the spreading financial crisis will exacerbate a global economic slowdown and further cut demand for crude oil. Light, sweet crude tumbled $3.82 to $90.06 a barrel on the New York Mercantile Exchange.
In corporate news, ailing Hartford Financial Services Group Inc. received a $2.5 billion investment from European insurer Allianz. Hartford’s market value was halved last week on concerns it needed more capital to survive, but shares recovered $2.97, or 11 percent, to $31.29 on Monday.
EBay Inc. fell $1.14, or 6 percent, to $17.81 after announcing it will cut about 1,000 jobs, reducing its work force by 10 percent, to streamline the company. The online auction site expects restructuring charges of about $70 million to $80 million, mostly during the fourth quarter.
Wells Fargo & Co. said late Sunday its takeover agreement with Wachovia Corp. will go forward after a state appeals court blocked a lower court ruling that favored rival bidder Citigroup Inc. Wells Fargo said it will “continue working toward the completion of its firm, binding merger agreement” with Wachovia.
Shares of Wells Fargo rose 67 cents, or 2 percent, to $33.77, while Citi fell $1.71 cents, or 9.3 percent, to $16.68. Wachovia fell 18 cents, or 2.9 percent, to $6.03.
Eli Lilly & Co. said its board approved an acquisition of ImClone Systems Inc. for more than $6 billion. The deal, which also has been approved by ImClone’s board, will create one of the leading oncology franchises in the biopharmaceutical industry. Eli Lilly fell $1.90, or 4.7 percent, to $39.35, while ImClone rose $1.76, or 2.7 percent, to $66.76.
• This article is based in part on wire service reports.
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