Tuesday, 15 July 2008

US stocks fall despite Treasury rescue plan

Yesterday's market action shows how difficult it is going to be to rebuild confidence in financial markets. From Bloomberg:

U.S. stocks fell, sending financial shares to their biggest drop in eight years, on heightened concern that bank failures will spread.

Washington Mutual Inc. posted the steepest retreat ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that regional banks are short of capital. The companies said they've seen no unusual depositor activity. Fannie Mae and Freddie Mac erased an earlier rally fueled by Treasury Secretary Henry Paulson's plan to help rescue the largest U.S. mortgage lenders.

The declines pushed the Standard & Poor's 500 Financials Index of 89 companies down 6.1 percent, its steepest plunge since April 2000. The S&P 500 slid 11.19 points, or 0.9 percent, to 1,228.3. The Dow Jones Industrial Average lost 45.35, or 0.4 percent, to 11,055.19. The Nasdaq Composite Index slipped 26.21, or 1.2 percent, to 2,212.87. More than two stocks dropped for each that rose on the New York Stock Exchange.

European stocks managed to post gains for the day. Bloomberg reports:

European stocks rose after takeovers increased and a six-week decline in the Dow Jones Stoxx 600 Index left shares at their cheapest relative to earnings in at least six years...

The Stoxx 600 advanced 0.8 percent to 272.47. Stocks rebounded after last week's drop capped the longest losing streak since January as concern deepened record oil prices will hurt automakers and airlines, while speculation grew that Fannie Mae and Freddie Mac of the U.S. were short of capital.

The gains were made despite more evidence yesterday that the economy is turning down. Again from Bloomberg:

European industrial production fell the most in almost 16 years in May, as the euro's gain against the dollar, soaring energy costs and cooling global growth weighed on the region's largest economies.

Output in the 15 nations that share the currency dropped 1.9 percent from the previous month, the biggest decline since December 1992, the European Union's statistics office in Luxembourg said today. From a year earlier, production decreased 0.6 percent, the first annual drop in three years.

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