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.
A three-week Securities and Exchange Commission (SEC) ban on short sales of almost 1,000 finance-related stocks expired Thursday — a move designed curb speculation after the chief executive officers of Lehman Brothers Holdings Inc. and Morgan Stanley accused hedge funds of driving down prices.
Companies on the SEC’s list slid 18 percent on average during the ban, compared with 24 percent drop for all financial companies in the Standard & Poor’s 500 Index.
Some analysts said the unprecedented ban on short selling — an effort to bolster investor confidence amid the worst financial crisis since the stock market crash of 1929 — will do more harm on the economy than good at a time of historic market volatility.
Treasury Secretary Henry Paulson signaled the government may take limited ownership in banks as the next step in trying to resolve the deepening credit crisis.
Mr. Paulson said Wednesday that a $700 billion bailout plan that Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks’ balance sheets. He indicated that an option available may be boosting companies’ capital with cash infusions.
“It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,” Mr. Paulson said. “We will use all of the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.”
President Bush will make a statement on Friday morning to assure Americans that every action is being taken to stabilize the financial system.
Mr. Bush will meet Saturday at the White House with finance ministers from the Group of Seven countries, as the U.S. and Europe try to ward off a global depression. The White House announced the meeting Thursday morning, one day after the Federal Reserve acted in concert with European central banks in cutting interest rates.
“The president will have the opportunity to hear directly from the finance ministers about how the financial crisis is affecting their respective economies and the steps they are taking, to deal with these challenges, both individually and collectively,” said White House spokeswoman Dana Perino said on Thursday.
The meeting also will include the managing director of the International Monetary Fund, and the president of the World Bank, Mrs. Perino said.
The G7 countries are: the United States, Britain, France, Japan, Canada, Germany and Italy. When Russia is involved in meetings of the body it becomes the G8.
Meanwhile, fewer Americans filed first-time applications for unemployment benefits last week, but the number of people staying on benefit rolls climbed to the highest level in five years. Initial jobless claims declined by 20,000 to 478,000 in the week that ended Oct. 4, compared with 498,000 the prior week, the Labor Department said Thursday.
Hurricanes Gustav and Ike, which hammered the coasts of Texas and Louisiana late summer and forced the evacuation of more than 2 million people, have distorted claims figures in recent weeks. Last week’s figures included about 17,000 applications from storm-related job losses, down from close to 50,000 in the previous two weeks, the department said.
The U.S. unemployment rate remained unchanged at 6.1 percent.
Jon Ward contributed to this article, which was based in part on wire service reports.
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