Wall Street suffered sharp losses after US President Barack Obama said the US may have to resort to bankruptcy proceedings to rescue ailing carmakers General Motors and Chrysler. The Dow Jones closed 3.27% lower.
REUTERS - U.S. stocks tumbled on Monday as two major U.S. automakers took a step closer to potential bankruptcy, and a spate of European bank rescues heightened concerns over the financial system's health, putting the brakes on a recent run-up.
In the latest efforts in its campaign to shore up the economy and struggling corporations, the U.S. administration forced out General Motors Corp's CEO, pushed Chrysler LLC toward a merger and threatened bankruptcy for both. The companies received a government bailout in December.
U.S banks' stocks slid after Spain, Germany and Britain acted to bolster lenders as the sector felt the impact of rising bad loans, while Treasury Secretary Timothy Geithner said over the weekend, some banks still need large amounts of help. The KBW Banks index fell 10.3 percent.
"The biggest concern is what happens with the U.S. banks and do we have another round of losses to be realized, and I think that's what's taking the market down today," said Jim McDonald, chief investment strategist at Northern Trust in Chicago.
"The problems that GM faces today in my opinion are significantly exacerbated by the recession and this is a reminder of the cost of trying to repair the economy."
The Dow Jones industrial average lost 254.16 points, or 3.27 percent, to 7,522.02. The Standard & Poor's 500 Index tumbled 28.41 points, or 3.48 percent, to 787.53. The Nasdaq Composite Index fell 43.40 points, or 2.81 percent, to 1,501.80.
Before today's sell-off, stocks had rallied around 20 percent after hitting fresh 12-year lows in early March.
Spain was forced to rescue its first bank since the financial crisis began and Germany and Britain also moved to prop up lenders, sending European markets down.
Geithner said on Sunday the government will have about $135 billion left after other banks give back some of the bailout money, but did not say whether he will ask Congress for more.
Citigroup slid 11.8 percent to $2.31 and Bank of America dropped 17.9 percent to $6.03.
"The financials still have major, major issues," said Bill Strazullo, partner and chief investment strategist at Bell Curve Trading in Boston.
"There are a lot of problems there that aren't going to go away any time soon. These banks are going to continue to require assistance from the government."
GM CEO Rick Wagoner, who presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the government's autos panel headed by former investment banker Steven Rattner.
GM shares tumbled 25.4 percent to $2.70, while shares of supplier companies also fell sharply as investors worried that a potential bankruptcy would send ripple effects through the entire economy. Shares of American Axle & Manufacturing sank
22.2 percent to $1.37.
U.S. President Barack Obama tried to soothe investor nerves by saying the government did not want to run GM, but added that Wagoner's departure reflected the company's need for a new direction.
Fellow automaker Chrysler LLC, owned by Cerberus Capital Management, a private equity company, said it had reached an agreement on Monday on a framework of an alliance with Italian peer Fiat SpA that has the support of the U.S. Treasury.
Trading was moderate on the New York Stock Exchange, with about 1.51 billion shares changing hands, slightly above last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.04 billion shares traded, below last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of more than seven to one, while on the Nasdaq, about three stocks fell for every one that rose.
Date created : 2009-03-30