US stocks fell sharply on Monday as credit concerns hounded financial stocks while global growth worries hurt big technology and industrial companies. The three major indexes fell about 2 percent each, wiping out gains booked on Friday, though traders said thin, end-of-summer conditions may have exaggerated the moves.
Stocks started the day under selling pressure, led by financials, after regulators late on Friday closed Columbian Bank and Trust, the ninth US bank to fail amid a weakening economy and falling home prices. American International Group Inc, the world's biggest insurer, was among the top drags on the Dow, with its shares falling to a 13-year low. Credit Suisse cut the company's share price target and forecast a huge loss for the insurer.
Shares of Lehman Brothers fell 6.3 percent after a top South Korean regulator voiced concern about state-run Korea Development Bank's interest in acquiring a global bank. Lehman had surged on Friday after KDB said it was considering the US investment bank among an array of acquisition options.
"You've got more of the concerns we've seen about credit and the financials. Lehman's down because of the speculation that the bid is not happening, and there's a negative report on AIG," said Bobby Harrington, head of block trading at UBS in Stamford, Connecticut.
The Dow Jones industrial average was down 241.73 points, or 2.08 percent, at 11,386.33. The Standard & Poor's 500 Index was down 25.28 points, or 1.96 percent, at 1,266.92. The Nasdaq Composite Index was down 49.12 points, or 2.03 percent, at 2,365.59.
Adding to the gloom, the International Monetary Fund trimmed its global growth forecasts for 2008 and 2009 in a note prepared for a meeting of the Group of 20 nations, a G20 finance official told Reuters. And Britain reported that its economy ground to a halt in the second quarter, the lowest reading since 1992. AIG's shares fell 5.5 percent to $18.77, after falling as low as $18.64. Late on Friday, Fitch Ratings said it may cut AIG's credit ratings.
Lehman shares fell 6.3 percent to $13.50 after soaring on Friday. An index of S&P financial companies lost about 3.1 percent. Industrial conglomerates were among the biggest decliners on the S&P 500. Heavy equipment maker Caterpillar Inc, which has a large overseas exposure, fell 2.4 percent to $68.56. Technology shares also fell amid concerns about the global economy.
Apple Inc, whose shares fell 2.4 percent to $172.55, was the top pull on the Nasdaq. Ninety-seven of the Nasdaq 100's stocks were in the red on the day. "The credit crisis is more than a year old and still there are lots and lots of issues," said Charles Lieberman, chief investment officer at Advisors Capital Management in Paramus, New Jersey.
"Investor psychology is certainly suffering from credit crisis fatigue. People are disappointed that the situation is not visibly improving." Oil ended up 52 cents at $115.11 a barrel, adding to concerns about consumer spending and business profits. US data showing the inventory of homes for sale rose to a record 4.67 million homes in July while prices dipped also bruised sentiment.
"Clearly there is no light at the end of the housing tunnel yet," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York. "The supply of unsold homes is still very high, suggesting there's going to be downward pressure on prices well into 2009."
Among the few gainers on the day were home finance firms Fannie Mae and Freddie Mac, which reversed large losses suffered last week on speculation a possible government bailout could wipe out shareholders. Freddie shares rose 17.1 percent to $3.29, helped by solid demand for its $2 billion bill sale, while shares of Fannie, the top US home finance provider, rose 3.8 percent to $5.19.
Trading volume was light on the New York Stock Exchange, with about 847 million shares changing hands, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 1.42 billion shares traded, also below last year's daily average of 2.17 billion. Declining stocks outnumbered advancing ones on the NYSE by about 3.4 to 1 while on the Nasdaq, decliners beat advancers by about 3.7 to 1.
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