Video: Dow free-falls

updated 11/8/2007 8:45:36 AM ET 2007-11-08T13:45:36

Wall Street suffered its second big drop in a week Wednesday, with investors worried about spreading fallout from the credit crisis at banks and about a dollar that just keeps getting weaker. The Dow Jones industrial average fell more than 360 points — just about matching its plunge of last Thursday.

A passel of worries tormented investors, including the dollar, which swooned amid speculation that China will seek to diversify some of its foreign currency stockpiles beyond the greenback. Meanwhile, a record loss from General Motors Corp. owing to an accounting adjustment further dragged on sentiment.

Oil traded above $98 per barrel for the first time before retreating, and gold pushed higher, moves exacerbated by an anemic dollar.

The 13-nation euro hit a fresh record against the dollar — rising to $1.4729 — before falling back. The dollar fell not only against the euro but in Asia following a report that a senior Chinese political figure said China should diversify its $1.43 trillion foreign exchange reserves into the euro and other strong currencies.

The euro's rally put it well above the $1.4554 the currency bought late Tuesday in New York. The previous record high, also set Tuesday, was $1.4571.

Financial stocks, battered in recent sessions by big write-downs by names like Citigroup Inc., fell again Wednesday amid fresh concerns about the extent to which bad debt tied to a faltering housing market will hurt balance sheets.

Video: Danger signs in economy When the market closed, the Dow fell 360.92, or 2.64 percent, to 13,300.02. The Dow, which had gained 117 points on Tuesday, had fallen 362.14 last Thursday, reflecting the extreme fractiousness on Wall Street these days.

Broader stock indicators also pulled back Wednesday. The Standard & Poor's 500 index fell 44.62, or 2.94 percent, to 1,475.65 — moving below the psychological benchmark of 1,500. The Nasdaq composite index fell 76.42, or 2.70 percent, to 2,748.76.

The Russell 2000 index of smaller companies fell.

A drop in the NYSE composite index proved steep enough to trigger trading curbs, which puts restrictions on certain kinds of sell orders and are meant to help stabilize the market.

Government bonds jumped as the dollar sank and as investors transferred more money from stocks to fixed-income investments. The yield on the 10-year Treasury note, which moves opposite its price, fell to 4.33 percent from 4.37 percent late Tuesday.

Major Market Indices

"A lot of the bad stuff is known, what the markets are worrying about is the unknown," Darst said, noting while fear of what lurks ahead is typical on Wall Street, concerns of souring debt spilling over into other types of credit and a general recession have grown.

The pullback in some stocks made clear the urgency of some investors' concerns about balance sheets.

Washington Mutual Inc. fell after the bank warned that it expects loan defaults to continue in the first quarter at the same pace as in the present quarter. Additionally, New York Attorney General Andrew Cuomo stepped up claims that the bank shares blame for inflated home prices nationwide. WaMu fell $3.98, or 16.4 percent, to $20.25.

In addition, American International Group fell $3.80, or 6.1 percent, to $58.25 ahead of a quarterly financial report, which was due after the closing bell.

Other names in the financial arena fell as well. Lehman Brothers Holdings Inc. fell $3.49, or 5.9 percent, to $55.88, while Morgan Stanley fell $3.65, or 6.7 percent, to $50.86.

Illustrating investors' unease, the Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," spiked, recently jumping 16.5 percent.

The weak dollar helped keep pressure on the price of oil. Light, sweet crude fell 10 cents to $96.60 on the New York Mercantile Exchange after the goverment reported inventories fell less than expected last week while refinery utilization remained flat.

Comments from Federal Reserve officials didn't give investors' much reason to reconsider their bets. Atlanta Fed President Dennis Lockhart warned that the U.S. economy will likely weaken amid a further pullback in housing and a pullback in spending by consumers watching their homes lose value on paper.

Economic data arriving Wednesday wasn't able to dislodge investors' downcast mood. The Labor Department reported that worker productivity surged at an annual rate of 4.9 percent in the summer, the fastest pace in four years, while wage pressures eased.

Figures on U.S. wholesale inventories showed a greater-than-expected increase in September but that demand also held up.

"We've been seeing a bit of a tug of war," said Tim Swanson, chief investment officer at National City's Private Client Group. "On one side we've got the forces of globalization and on the other side we've got woes from housing and largely related credit concerns," he said.

Declining issues outnumbered advancers by nearly 7 to 1 on the New York Stock Exchange, where volume came to 1.05 billion shares.

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