US stocks tumbled on Monday as two major US automakers took a step closer to potential bankruptcy, and a spate of European bank rescues heightened concerns over the financial systems 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 US administration forced out General Motors Corps CEO, pushed Chrysler LLC toward a merger and threatened bankruptcy for both.
The companies received a government bailout in December. US 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 US banks and do we have another round of losses to be realised, and I think thats whats taking the market down today," said Jim McDonald, chief investment strategist at Northern Trust in Chicago.
The Dow Jones industrial average lost 254.16 points, or 3.27 percent, to 7,522.02. The Standard & Poors 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 todays 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. 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. 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. Trading was moderate on the New York Stock Exchange, with about 1.51 billion shares changing hands, slightly above last years estimated daily average of 1.49 billion, while on Nasdaq, about 2.04 billion shares traded, below last years daily average of 2.28 billion.
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