Stocks Tumble As Credit Concerns Return

Source : The Straits Times, Nov 2, 2007

NEW YORK - WORLD stocks tumbled and bonds rallied on Thursday as a resurgence in credit worries roiled markets and sent investors into safe-haven investments one day after the Federal Reserve cut interest rates to calm subprime-related concerns.

Weaker financial stocks led a steep drop on Wall Street that encouraged investors to back out of riskier assets, pushing up the yen against the dollar and lifting United States Treasury debt prices.

European shares suffered their largest one-day per centage drop in eight weeks, hit by declines in banks, with the pan-European FTSEurofirst 300 index down 1.6 per cent.

Credit Suisse reported a 2.2 billion Swiss franc (S$2.8 billion) writedown on bad loans and mortgage investments on Thursday and said its investment banking division barely broke even.

Citigroup shares fell as much as 9 per cent after a CIBC World Markets analyst downgraded the largest US bank to 'sector underperformer'. The analyst said Citigroup would be forced to sell assets, raise capital or cut its dividend to improve its capital ratios.

CIBC also downgraded Bank of America, saying it sees a diminished revenue outlook for the bank.

GMAC, the finance company once controlled by General Motors, said it lost US$1.6 billion (S$2.32) in the third quarter.

'It is all concerns about the implosions in the credit markets and that we are only seeing the beginning of it - that it is going to hurt the economy and most likely force the Fed's hand again to ease,' said Ms Mary Ann Hurley, vice-president of fixed income trading at D.A. Davidson in Seattle.

'Also, the economic data today was really mixed at best for the economy,' Ms Hurley said. -- REUTERS