The Dow Jones Industrial Average dropped 427.63 points to close under 8,000 points for the first time in more than five years, mirroring European stock declines earlier Wednesday.
U.S. and European shares ended at five-and-a-half-year closing lows on Wednesday as a record drop in U.S. consumer prices and more dismal housing data stoked recession fears, driving a flight to safety.
Doubts about the prospect of a U.S. auto industry rescue added to America's weak economic outlook, further weighing on stocks and helping push the dollar down against the yen.
All three major U.S. indexes -- the Dow, S&P 500 and Nasdaq -- posted their lowest closes since early 2003, while MSCI's all-country world index also slipped to lows last seen more than five years ago.
The S&P and Nasdaq fell more than 6 percent, the Dow shed more than 5 percent and the MSCI index lost about 4.7 percent.
All 30 components of the Dow closed lower, while in the S&P only seven stocks rose out of the index's 500 companies.
Shares of the three largest U.S. banks -- JPMorgan Chase, Citigroup, and Bank of America -- posted double digit percentage drops to multiyear lows on expectations that a worsening economy and credit conditions will weigh heavily on them.
Oil fell below $54 to 22-month lows after an unexpectedly large build in U.S. crude inventories underlined falling demand in a rapidly deteriorating economy.
Debt prices on both sides of the Atlantic rose on signs of fading inflation after the U.S. government reported a 1 percent drop in consumer prices in October -- the biggest drop since the Labor Department began monthly records in 1947.
A slump in new-home building to fresh lows also helped drive up risk aversion and the price of government debt.
"There is still a heightened preference for quality, safety and security. Cash is coming out of equities and other riskier assets and into the Treasury securities market, particularly the back end," said William Sullivan, chief economist with JVB Financial Group in Boca Raton, Florida.
Markets are pricing in further rate cuts, with the U.S. Federal Reserve seen cutting another 50 basis points in December and figures derived from Eonia rates fully pricing in 75 basis points of European Central Bank cuts next month.
With prospects for a U.S. auto industry rescue diminishing, shares of General Motors fell to a 66-year low before paring losses to close down 9.7 percent, while Ford plunged 25 percent.
"There's just no catalyst to buy stocks and for the kind of confidence we need for the market to have any sustainable progress," said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm in Toledo, Ohio.
The rout was broad and deep. Declining shares on the New York Stock Exchange outnumbered advancers by 16 to 1, while 941 issues -- more than 1 out of 4 issues that traded -- set 52-week lows.
JPMorgan Chase fell 11.4 percent, Citigroup slipped more than 23 percent to $6.40 and Bank of America shed 14 percent.
Big U.S. homebuilders and real estate companies also fell sharply. The benchmark MSCI U.S. REIT index fell more than 13 percent, while the Dow Jones U.S. Home Builders index was off almost 11 percent.
The Dow Jones industrial average closed down 427.47 points, or 5.07 percent, at 7,997.28. The Standard & Poor's 500 Index was down 52.54 points, or 6.12 percent, at 806.58. The Nasdaq Composite Index was down 96.85 points, or 6.53 percent, at 1,386.42.
In Europe, banks and commodity shares led the market lower.
A profit warning from BASF, the world's top chemicals maker by revenue, the second time in two months, also was drag. BASF said it would cut output after a "massive" decline in demand; its shares fell 13.7 percent.
The FTSEurofirst 300 index of top European shares closed 4 percent lower at 811.99 points, and is now down about 45 percent this year.
"The outlook is still very poor and the profit warning from BASF didn't help sentiment," said Edmund Shing, a strategist at BNP Paribas in Paris.
A 1.6 million barrel rise in crude oil inventories, twice analysts' expectations, was just another sign in the weak prospects for world growth.
"With no end in sight for the global economic turmoil, traders continue to focus on the lack of demand heading into 2009," said Jonathan Kornafel, Asia director of U.S.-based options trader Hudson Capital Energy. "It is becoming quite evident that demand may actually drop from 2008 to 2009."
U.S. crude settled down 77 cents at $53.62 a barrel, the lowest settle since Jan. 22, 2007, after forecasts for colder weather in the United States sent prices up earlier.
London Brent fell 12 cents to settle at $51.72 a barrel, the lowest settle since May 31, 2005.
Analysts said many investors are staying out of the markets until the depth of a world recession becomes clearer. The resultant thin volume is exaggerating price moves.
"The truth is we're seeing very poor liquidity and my sense is that a lot of people have taken their toys and gone home," said Firas Askari, head of currency trading at BMO Capital Markets in Toronto.
Growing stock losses has fueled demand for longer debt maturities as investors scramble for low-risk investments that offer returns above inflation. Euro zone government bond futures sprinted to their highest prices since March 2006.
The benchmark 10-year U.S. Treasury note gained 44/32 in price to yield 3.37 percent. The 2-year U.S. Treasury note rose 3/32 in price to yield 1.09 percent.
The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.67 percent at 87.69. Against the yen, the dollar fell 1.08 percent at 95.91.
The euro fell 0.81 percent at $1.2519.
U.S. gold futures ended slightly higher, erasing sharp early session gains
The December gold contract settled up $3.30 at $736.00 an ounce in New York.
Overnight in Asia Japan's Nikkei average slipped 0.7 percent, while the MSCI index of Asia-Pacific stocks outside of Japan fell 1.1 percent and was not far from a four-and-a-half-year low hit last month.
Date created : 2008-11-19