US stocks fell sharply on Friday after Treasury Secretary Henry Paulson gave no signs of planning a bailout for home financing providers Freddie Mac and Fannie Mae, and oil prices hit an all-time high, clouding the outlook for the economy.
All three major US stock indexes dropped about 2 percent, with the Dow Jones industrial average breaking below the psychologically important 11,000 level for the first time since July 2006. Paulson, reacting to a New York Times report that said the government is mulling a take-over of the two mortgage lenders, said the Treasury Department's main goal at the moment is to back the companies "in their current form."
Fannie Mae's and Freddie Mac's stocks recovered from their session lows after Paulson's statement, although they were still down steeply, as a full take-over could potentially wipe out shareholder value. Fannie Mae was down 28.6 percent at $9.42, off a session low at $6.87, and Freddie Mac was down 25 percent at $6.00, off a session low at $3.89. They topped the list of the New York Stock Exchange's biggest percentage losers in early afternoon trading.
The Dow Jones industrial average was down 217.22 points, or 1.93 percent, at 11,011.80. The Standard & Poor's 500 Index was down 23.58 points, or 1.88 percent, at 1,229.81. The Nasdaq Composite Index was down 43.20 points, or 1.91 percent, at 2,214.65.
Lehman Brothers shares slid 20 percent to $13.91, a day after dropping over 12 percent on discredited rumours of customers pulling back their exposure to the investment bank. Only two Dow components were in the black: General Electric, up 0.5 percent at $27.77 after it posted second-quarter profit in line with Wall Street expectations.