Markets flashed signs of panic Thursday as evidence of recession mounted and banks remained wary of lending to one another.
Stocks and commodities slid, prices for U.S. Treasury bonds and other safe-haven investments rose sharply, and European currencies slumped amid worries that economic weakness there will deepen.
In the U.S., new data showed a seven-year high in jobless claims and a plunge in factory orders, underscoring the woes in non-financial sectors of this country's economy that have gotten relatively little attention amid the recent debate over a rescue package for troubled Wall Street firms.
Traders welcomed the passage of that plan Wednesday night in the U.S. Senate, but they remain jittery about its chances in the House of Representatives, where the members who rejected it earlier in the week are due to take a new vote on Friday.
Even if the package does pass, small investors and Wall Street veterans alike are increasingly coming to the bleak realization that federal intervention can at best only minimize, not reverse, the economic pain that lies ahead. The credit markets remain tight as dealers and banks seek to preserve funds. Treasury prices rose and yields fell, as investors continue to flock to safe-haven investments.
"We've been focusing on the bailout so much in the last two weeks, it's almost like we haven't been paying attention to the economic signs that would usually be a big deal for us," said Art Hogan, chief market strategist at Jefferies & Co. "The economic data look atrocious."
In recent action, the Dow Jones Industrial Average was off almost 310 points, down 2.9%, to 10521.48, hurt by a 9.2% slide in its component General Electric ahead of the company's pricing of a $12 billion public offering it announced on Wednesday.
The S&P 500 fell 3.3% to 1122.47. All the broader measure's sectors traded lower, led by the most economically sensitive categories. Industrials were down 6.9%, basic materials were off 7%, and energy was down 5.5%.
The Dow Jones Transportation Average plunged 8.9% to 4171.51, reflecting investors' concern that there won't as much need to move goods around as the U.S. economy weakens more than previously expected. The technology-focused Nasdaq Composite Index fell 3.8% to 1991.52. The small-stock Russell 2000 was off 4.2% to 643.53.
In economic news, the number of U.S. workers filing new claims hit a fresh seven-year high, the Labor Department reported early Thursday, as recent hurricanes in Louisiana and Texas combined with a weak economy to accelerate the pace of layoffs. Initial claims for jobless benefits rose 1,000 on a seasonally adjusted basis to 497,000 in the week ended Sept. 27.
Orders for manufactured goods decreased 4.0%, following a sharp, downwarldy revised 0.7% increase in July, the Commerce Department said Thursday. Originally, factory orders were seen rising 1.3% in July.
The new data reinforced investors' fears of a deep, persistent recession and sent them to Treasurys as a safe haven. Government debt also continued to be attractive because of the perceived reliability of the U.S. Treasury at a time when investors are uncertain about the solvency of many banks and corporate borrowers.
The yield on three-month Treasury bills fell around 0.6%, down from about 0.8% late Wednesday. The benchmark 10-year note rose 22/32 to yield 3.659%, down from 3.770%.
In the meantime, measures of interbank lending remained tight. According to the British Bankers' Association, overnight U.S. dollar Libor, a key measure of banks' interest costs, fell to 2.68125%%, down from Wednesday's fixing of 3.79375%. But longer-term funding pressures increased as three-month Libor for borrowing dollars rose to 4.2075%, the highest level since Jan. 11.
The U.S. commercial paper market, where banks and companies fund their short-term obligations such as payrolls and inventories, also continued to be under pressure. The outstanding amount of commercial paper fell by $94.9 billion in the week ended Wednesday, the largest drop ever recorded by the Federal Reserve since it began tracking such data in 2001.
"We're still freezing up and seeing a lot of dislocation in the credit markets despite the steps that have been taken so far," by regulators and other officials in the U.S. and abroad to bail out financial firms on a case-by-case basis, said strategist Tony Dwyer, of FTN Midwest Securities.
Many Wall Street veterans on Thursday continued to hope for congressional passage of a broader rescue package for firms saddled with bad credit bets. Despite the $700 billion proposal's success in the Senate on Wednesday night, concerns about its prospects in the House continued to simmer.
Separately, Federal Reserve officials are weighing further interest-rate cuts in the face of a deteriorating economic outlook and severely strained financial conditions, according to The Wall Street Journal. Meanwhile, the Securities and Exchange Commission extended the short-selling ban until three days after the bailout bill is enacted into law.
In a closely watched policy move overseas, the European Central Bank left its key interest rate unchanged at 4.25% but signaled that its next move may be a reduction. Such a move would spur economic growth in the eurozone, which has the world's second-largest economy, but it would also effectively increase the supply of euros coursing through the global financial system.
The prospect of such a scenario sent the euro lower against the dollar, which also strengthened against the British pound and other European currencies. The U.S. Dollar Index, which measures the greenback's value against a basket of six foreign denominations, was up 0.9%.
Prices of raw materials were hit hard amid fears of sagging demand due to the global economy's weakness. Crude-oil futures fell $4.61 to $93.92 a barrel. Gold contracts plummeted $41.70, or 4.7%, to $839.00 per ounce in New York. The broad Dow Jones-AIG Commodity Index shed almost 5%.
In a rare bright spot for investors, the Swiss bank UBS said it expects "a small profit" in the third quarter, raising investors hopes that at least a few firms may be seeing their credit-related woes subside after months of red ink. UBS shares were up nearly 6%.
http://online.wsj.com/article/SB122294483713397869.html
Topic: Stock Market Extends Losses As Economic Concerns Persist even WITH Bailout! (Read 439 times)