Credit crunch fears pummel stocks
By Tim Paradis
By Tim Paradis
NEW YORK — Wall Street's deepening fears about a spreading credit crunch sent stocks plunging again yesterday, with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points. The catalyst for the market's latest skid: a French bank's announcement that it was freezing three funds that invested in U.S. subprime mortgages.
The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone — institutions, investors, companies, individuals — can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.
BNP Paribas owns BancWest Corp., whose subsidiaries include First Hawaiian Bank. Shares of BNP Paribas, which are traded over the counter in the U.S., fell $3.60, or 6.1 percent, to close at $55.90.
A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.
The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.
The concerns that arose in Europe and spilled onto Wall Street underscored the potential worldwide ramifications of an implosion of some subprime loans and perhaps also weakened arguments that strength in the global economy could help keep profit growth going in the U.S. among large companies that do business overseas.
The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spreading into the general economy.
"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."
Retailers released July sales figures yesterday that were overall disappointing.
The Dow dropped 387.18, or 2.83 percent, to 13,270.68.
Yesterday's pullback continued an erratic pattern of triple-digit moves in the Dow since the index closed at a record 14,000.41 on July 19. Eleven of the 15 ensuing sessions have ended in a triple-digit gain or loss. Gains have been evaporating at the first mention of trouble in housing, subprime lending or the credit markets.
With yesterday's decline, the Dow is about 730 points, or 5.2 percent, below its record close. Some experts have been calling for a textbook correction — a pullback of at least 10 percent. At its lowest close since the market's high, Friday's finish of 13,181.91, the Dow was 5.85 percent below the record.
The broader Standard & Poor's 500 index fell 44.40, or 2.96 percent, to 1,453.09.
Before yesterday, the S&P had its best three-day winning streak in nearly five years. But the latest pullback was the biggest point drop and percentage loss for both the Dow and the S&P since a market decline on Feb. 27 that owed in part to concerns about subprime loans.
The Nasdaq composite index fell 56.49, or 2.16 percent, to 2,556.49. On Wednesday, it posted its biggest point gain in more than a year. And while yesterday's loss was sharp, last Friday's was more severe.
Despite yesterday's slide, the major market indexes are still up for the week, given that stocks rose sharply the first three sessions of the week.
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 5.76 billion shares compared with 5.3 billion shares traded Wednesday.
The Chicago Board Options Exchange's volatility index, often called the "fear index," rose yesterday to its highest level since April 2003.
European stocks plunged. Britain's FTSE 100 lost 1.92 percent, Germany's DAX index fell 2.00 percent, and France's CAC-40 fell 2.17 percent after being down more than 3 percent.