US stocks plunge to 5 1/2-year low

 

NEW YORK:US stocks plunged to five and a half year lows yesterday after data revealed a sharp deterioration in the world’s largest economy and the Federal Reserve admitted the risk of a long recession.

The Dow Jones Industrial Average tumbled 427.47 points (5.07 per cent) to finish at 7,997.28. It was the first time the blue-chip index closed below 8,000 since March 31, 2003.

The tech-heavy Nasdaq skidded 96.85 points (6.53 per cent) to 1,386.42, its lowest level since April 14, 2003.

And the broad Standard & Poor’s 500 index retreated a hefty 52.54 points (6.12 per cent) to 806.58, another five-and-a-half-year low.

Dismal government reports showed a record fall in consumer prices and a record low in starts on housing construction and struggling automakers begged Congress for a second straight day for a bailout.

“Talks on aid to automakers appear doomed in Washington and economic reports suggest a deepening recession,” said Al Goldman, analyst at Wachovia Securities.

The Labour Department reported that US consumer prices plunged 1.0 per cent in October, the steepest fall since the data was first published in February 1947.

The fall in the consumer price index (CPI) was broad-based, with only food prices still rising.

Core CPI, excluding food and energy prices, slipped 0.1 per cent.

“Consumer price inflation has suddenly screeched into reverse, as the recent abrupt slowdown in world economic growth has led to sharp declines in energy costs, while very weak domestic demand is putting downward pressure on retail prices in many key retail channels, particularly computers and electronics,” said Brian Bethune, analyst at IHS Global Insight.

The Commerce Department reported separately that builders broke ground on the fewest number of new homes since it began publishing the data in January 1959.

Housing starts were down 38.8 per cent on a 12-month basis despite government efforts to revive credit flows and stem a rising tide of foreclosures in the wake of the collapse of the housing market in mid-2006.

Permits to build new homes, an indicator of future activity, dropped 12.0 per cent to the slowest pace since that data was first published in January 1960, and were down 40.1 per cent from October 2007.

The housing slump has not yet hit bottom, analysts said. US officials say that correcting the economy’s current downturn requires a recovery in the huge housing market.

Top executives of General Motors, Ford and Chrylser were back on Capitol Hill for the second day in a row, pleading for an emergency bailout from a Senate committee.

GM shares slid 9.71 per cent to US$2.79 and Ford fell 25.0 per cent to US$1.26.

Among other stocks in focus, Citigroup plunged 23.44 per cent to US$6.40 amid a rout on the financial sector. Bank of America dropped 14.02 per cent to US$13.06 and JPMorgan Chase shed 11.42 per cent at US$28.47.

Fannie Mae, the government-rescued mortgage finance giant which is at risk of delisting because of its share meltdown, tumbled 19.15 per cent to 38 cents.

Dow heavyweight ExxonMobil fell 3.81 per cent to US$73.42 as crude oil prices fell for the fourth consecutive session. - AFP