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Wall Street tumbles amid global sell-off, oil below $90

(Agencies)
Updated: 2008-10-07 00:00

Wall Street tumbled Monday, joining a selloff around the world as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the US and other governments. The Dow Jones industrials skidded more than 400 points and fell below 10,000 for the first time in four years, while the credit markets remained under strain.

A trader works on the floor of the New York Stock Exchange October 6, 2008. US stocks slid at the open on Monday as widening fallout from the credit crisis fueled concerns about the economy and the profit outlook. [Agencies]

The markets have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash. That's caused investors to exit stocks and move money into the relative safety of government debt.

Related readings:  US stocks decline after bailout passage  Americans cut back on life after bailout  Bailout signed, now it's wait and see its effects  China hopes US bailout bill can stabilize markets

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.

The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.

The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

Investors took a bleak view of the future, seeing no end to the crisis in the near term. But analysts were more optimistic.

"These programs are going to be effective I believe," said Rob Lutts, chief investment officer at Cabot Money Management. "Shorter term we're in a very challenging environment that's going to take a while."

In midmorning trading, the Dow Jones industrial average fell 403.65, or 3.91 percent, to 9,921.73, dropping below 10,000 for the first time since Oct. 29, 2004. At one point, the Dow was down more than 400.

Broader indexes also tumbled. The Standard & Poor's 500 index shed 51.71, or 4.70 percent, to 1,047.52; and the Nasdaq composite index fell 95.83, or 4.92 percent, to 1,851.56. The Russell 2000 index of smaller companies dropped 28.78, or 4.65 percent, to 590.62.

In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's stock markets also declined, with the FTSE-100 down 3.24 percent, Germany's DAX down 5.28 percent, and France's CAC-40 down 5.60 percent.

The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.38 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 3.52 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 US 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.

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.

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