Stocks see-saw back down
NEW YORK -- Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points.
The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone -- institutions, investors, companies, individuals -- can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.
A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the European Central Bank's biggest injection ever.
The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.
The concerns that arose in Europe and spilled onto Wall Street underscored the potential worldwide ramifications of an implosion of some subprime loans and perhaps also weakened arguments that strength in the global economy could help keep profit growth going in the U.S. among large companies that do business overseas.
The European Central Bank's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding it shows problems in subprime lending are, in fact, spilling into the general economy.
"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."
Retailers released July sales figures Thursday that were overall disappointing.
The Fed didn't soften its stance on inflation after leaving short-term interest rates unchanged Tuesday. However, the renewed credit market concerns spurred bond traders who bet on its next move to predict early in the session that the Fed will cut rates at its meeting next month. Before Thursday, traders had bet on a 1 in 4 chance of such a cut.
The Dow fell 387.18, or 2.83 percent, to 13,270.68.
Thursday's pullback continued an erratic pattern of triple-digit moves in the Dow since the index closed at a record 14,001.41 on July 19. Eleven of the 15 ensuing sessions have ended in a triple-digit gain or loss. Gains have been evaporating at the first mention of trouble in housing, subprime lending or the credit markets.
With Thursday's decline, the Dow is about 730 points, or 5.2 percent, below its record close. Some experts have been calling for a textbook correction -- a pullback of at least 10 percent. At its lowest close since the market's high (Friday's finish of 13,181.91), the Dow was 5.85 percent below the record.
Bonds rose sharply as investors again sought the relative safety of Treasuries, pushing down the yield on the benchmark 10-year note to 4.79 percent from 4.89 percent late Wednesday.
The broader Standard & Poor's 500 index fell 44.40, or 2.96 percent, to 1,453.09.
Before Thursday, the S&P had its best three-day winning streak in nearly five years. But the latest pullback was the biggest point drop and percentage loss for both the Dow and the S&P since a market pullback on Feb. 27.
BNP Paribas Investment Partners said it was suspending its three funds together worth about $3.79 billion and wouldn't make investor redemptions until it could determine net asset values.
The funds invest in part in subprime mortgages through a process known as securitization. Investment banks bundle together mortgages -- including those from subprime borrowers -- and sell them off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking the steady flow of income from homeowners making their mortgage payments.
Shares of financial companies, which investors have fled recently amid lending concerns, took another beating Thursday. Citigroup fell 5 percent, as did fellow Dow component JPMorgan Chase & Co.