Troubled financials send Dow down 2%
NEW YORK » Stocks sank in thin trading yesterday as worries about American International Group Inc.
touched off broader concerns that financial companies will face more trouble to come.
The major indexes lost about 2 percent. The Dow Jones industrial average fell by nearly 250 points, erasing a gain of about 200 points seen Friday. Bond prices also jumped as investors fled to the safety of government debt.
New York-based AIG was the steepest decliner among the 30 stocks that make up the Dow industrials after a Credit Suisse analyst cut his price target on the world's largest insurer and after Fitch Ratings warned late Friday that it might cut its ratings on the company, which has been buffeted by investors' distaste for some of the types of complex debt instruments on AIG's books.
The financials have struggled in part because of a spike in the number of homeowners who have fallen behind on their mortgage payments. A report yesterday by a trade group for real estate agents showed the number of unsold properties rose to an all-time high in July. On the other hand, the report by the National Association of Realtors said sales of existing homes increased 3.1 percent, a better-than-expected result.
The news arrived as volume remained light, with many traders on vacation for the last week of August.
The Dow industrials fell 241.81, or 2.08 percent, to 11,386.25. The Dow surged nearly 200 points Friday as oil tumbled more than $6 a barrel - its biggest percentage drop in more than four years - and after Federal Reserve Chairman Ben Bernanke said inflation pressures are likely to moderate.
Broader stock indicators also fell yesterday. The Standard & Poor's 500 index declined 25.36, or 1.96 percent, to 1,266.84, and the Nasdaq composite index fell 49.12, or 2.03 percent, to 2,365.59.
The Russell 2000 index of smaller companies fell 17.06, or 2.31 percent, to 720.54.
Bonds jumped yesterday as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.78 percent from 3.87 percent late Friday. The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose 52 cents to settle at $115.11 per barrel on the New York Mercantile Exchange after Tropical Storm Gustav formed in the Caribbean.
Declining issues outnumbered advancers by nearly 4 to 1 on the New York Stock Exchange, where volume came to an anemic 865.2 million shares compared with 888.6 million Friday.
Investors focused yesterday on troubles in the financial sector. AIG fell $1.09, or 5.5 percent, to $18.78; the stock at times fell to levels not seen since the fall of 1995.
Lehman Brothers Holdings Inc. fell 96 cents, or 6.7 percent, to $13.45 amid speculation about the future of its chief executive and the independence of the nation's fourth-largest investment bank.