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The Standard & Poor's 500 Index had its worst week in 75 years on concern the credit crisis will spread from banks to consumer companies and energy producers, triggering a global recession.
Financial firms in the S&P 500 fell to an almost 12-year low, led by Morgan Stanley, on speculation they're running short of money as lending markets freeze. General Motors and Ford slid more than 45 per cent as S&P said the carmakers may be forced into bankruptcy. Exxon Mobil, the largest energy company, lost a fifth of its value as oil prices dropped below US$78 for the first time in a year.
The S&P 500 dropped 200.01, or 18 per cent for the week, to 899.22, the lowest since April 2003. The Dow Jones Industrial Average lost 1874.19 points, or 18 per cent, to 8451.19 for the biggest weekly slide in the history of the 30-stock index. "What we have is a slow-motion crash," said Robert Arnott, of Pasadena, California-based Research Affiliates, which manages US$39 billion ($65.48 billion). "In the space of 10 days we've had a 25 per cent drop - that's a crash. It's slow- motion compared with 1987 or 1929."
The S&P 500 has fallen 39 per cent this year, led by financial companies, as losses tied to the collapse of the sub-prime mortgage market topped US$630 billion. The benchmark is poised for its worst annual performance since 1937.
A gauge of banks and insurers in the S&P 500 fell 22 per cent this week to the lowest since December 1996. Credit markets stayed frozen as the cost of borrowing in dollars in London rose to the highest this year, according to the British Bankers' Association.
Morgan Stanley plunged 60 per cent to US$9.68 as Moody's Investors Service said it may reduce the US investment bank's credit rating on concern the financial crisis threatens earnings and investor confidence. Goldman Sachs dropped 31 per cent to US$88.80.
The banks retreated as a restriction on short selling for most financial shares expired on October 8. John Mack, Morgan Stanley's chief executive officer, last month lobbied the Securities and Exchange Commission to ban the practice, arguing it was driving down the company's stock. Short sellers borrow stock and sell it, hoping to buy it back at a lower price.
Bank of America slid 39 per cent to US$20.87. The lender cut its dividend in half and sold US$10 billion in common stock at a discount. Citigroup fell 23 per cent to US$14.11 after Wells Fargo trumped its bid to buy Wachovia.
Ford dropped 51 per cent to US$1.99 and GM lost 46 per cent to US$4.89. S&P said it may cut the companies debt deeper into junk. "Macro factors could overwhelm them at some point," Robert Schulz, S&P's lead automotive credit analyst, said. "The markets have melted down in front of us," said Robert Weissenstein, chief investment officer at Credit Suisse Holdings in New York.
- BLOOMBERG