Dow below 6,800; lowest close since ’97

NEW YOR, March 3 – Investor worries about the economy in general, and financial companies in particular, continued to erode the markets on Monday as the Dow Jones industrial average fell below 7,000 for first time since October 1997.
“It’s pretty despondent everywhere,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “Okay, there are signs that some of the leading indicators have stabilised to some extent, but it’s at a very, very low level, and we’re not seeing corporate investment picking up, or consumers starting to spend again – in other words, the traditional mechanisms by which economies come out of a recession are absent at this time.”
At the close, the Dow was down 299.64 points, or 4.2 per cent to 6,763.29, while the Standard & Poor’s 500-stock index declined 34.27 points or 4.6 per cent , to 700.82. The Nasdaq fell 3.9 per cent or 54.99 points to 1,322.85.
Investors expressed concern about the ability of banks to raise more capital, after the British bank, HSBC Holdings, offered new shares at a substantial discount. HSBC Holdings, the global British bank, fell 18.7 per cent after the bank said it would seek to raise nearly $18 billion in capital from shareholders and shut down its American consumer lending business.
Washington also agreed on Monday to provide another $30 billion to the insurance giant, American International Group, which also reported a $61.7 billion loss. On Friday, Washington took a larger stake in Citigroup, reducing the value of shareholders’ stock.
“Another day, another 200 points,” David Dietze, chief investment strategist at Point View Financial Services, said, comparing the daily markets to water torture.
The decision by many companies to trim dividends – one of the remaining incentives for owning stocks – was contributing to the sell-off, Dietze said.
Earlier Monday, the large regional bank PNC Financial Services Group cut its dividend 85 per cent and the International Paper Company cut its by 90 per cent. Last week, General Electric cut its dividend 68 per cent , and JPMorgan Chase reduced its dividend 87 per cent.
Looking ahead, he said: “All eyes are on that Friday unemployment report.”
“We could be in for a shocker,” he said. Economists expect a loss of 675,000 jobs in February, following a decline of 598,000 in January. The unemployment rate is expected to rise to 8 per cent , from 7.6 per cent.
The declines on Monday were across the board, led by the banking and basic materials sector.
Citigroup was down 17.9 per cent while Bank of America down 7.9 per cent. JPMorgan Chase declined 6.2 per cent. The S&P financial sector was down 5.8 per cent overall.
BNP Paribas fell 8.3 per cent , Royal Bank of Scotland fell 2.5 per cent and UBS fell 10.6 per cent in Europe, while Mitsubishi UFJ fell 6.9 per cent and Mizuho Financial Group 3.7 per cent in Tokyo.
Shares of A.I.G. were 7.2 per cent higher on the strength of the latest government assistance.
Dietze said that investors were also concerned about the message that they were hearing from governments. In Europe, over the weekend, stronger countries refused to come to the aid of smaller, struggling governments.
And out of Washington, he said, the message continues to be inconsistent.
The Senate has delayed confirmation of some members of the administration’s economic team, and the government has yet to value the toxic mortgage assets it has accepted from financial institutions.
“As bad as things are, they can still get worse, and get a lot worse,” Bill Strazzullo, chief market strategist for Bell Curve Trading, told The Associated Press. Strazzullo said he believed there was a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.
The “game-changer,” he told The A.P., will be the housing market and whether it can stabilise.
Crude oil settled at $40.70 a barrel, down $4.06 in New York trading.
Bond prices rose Monday as investors sought safety while the yield on the three-month T-bill fell slightly.
Wall Street followed both Europe and Asia lower. In economic news on Monday, personal spending rose 0.6 per cent in January and incomes rose 0.4 per cent , while construction spending fell 3.3 per cent. Manufacturing contracted in February for the 13th month, but at a slower pace than expected.
The Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 4.7 per cent , while the FTSE 100 index in London dropped 5.3 per cent. The CAC 40 in Paris fell 4.4 per cent and the DAX in Frankfurt fell 3.4 per cent.
Currencies across Eastern Europe plunged Monday after European Union leaders rejected a huge rescue package for its newest members. Officials in Brussels rejected suggestions that the foreign exchange markets were reacting to decisions made at a summit meeting Sunday, where leaders agreed only to consider any bailouts on a case-by-case basis.
The monetary affairs commissioner Joaquín Almunia told reporters in Brussels that the European Union was providing a huge amount of support to its eastern members. But he conceded more may be needed for some countries.
Still, bank analysts and traders were unimpressed, as reflected in sharp currency market drops.
“The EU again has proven it is unable to manage a coordinated response to the crisis,” Commerzbank analysts wrote in a note Monday. “The problems arising in Eastern Europe will put further pressure on the euro.”
The Tokyo benchmark Nikkei 225 stock average fell 3.8 per cent , while the S&P/ASX 200 in Sydney shed 2.8 per cent. The Hang Seng index in Hong Kong dropped 3.9 per cent.
The TSX in Toronto dropped 5.9 per cent after the government reported that Canada’s economy shrank in the fourth quarter for the first time since 1991. Statistics Canada said on Monday the economy contracted at an annualised rate of 3.4 per cent in the quarter, the worst performance since the first quarter of 1991.
Economic data and company earnings in recent weeks have eroded hopes that a gradual recovery would start to materialize during the second half of the year. If, as seems increasingly likely, a tangible recovery will not come until 2010 at the earliest, Evans said, “that means corporate earnings will remain extremely soft for quite some time.”
“And that in turn means it’s pretty clear that there is more value to be had in safe havens like bonds than in equities,” he added.
Economic data from Europe added to the dismal atmosphere in the market.
The Markit euro zone manufacturing purchasing managers’ index sank in February to a record low of 33.5 from 34.4 in January.
On Monday, the Japan Automobile Dealers Association said in a statement that auto sales in February declined 32.4 per cent , the seventh consecutive monthly decline.
Japan last week reported that exports in January declined by nearly half from a year ago, while South Korea on Monday released data for February – the first in the region to issue data for that month – showing a 17 per cent plunge in exports. – NYT