Wall St Skids About 3% On Recession Sign

Source : The Straits Times, Feb 06, 2008

NEW YORK - US stocks suffered their biggest drop in nearly a year on Tuesday after data showed the worst monthly contraction in the services sector since the last US recession and Standard & Poor's warned it could cut bank credit ratings.

The Dow and S&P 500 had their biggest drops since Feb 27, 2007. All 30 Dow stocks fell and only 17 of the 500 components on the S&P closed higher.

Recession fears slammed sectors across the board, ranging from telecommunications to energy. Banks and other financial services stocks fell particularly hard after S&P said any loss of a top credit rating by a major bond insurer could force banks to put hobbled bonds back on their balance sheets, curtailing funds available for basic lending.

'This could lead to a further prolonged period of generalised market disruption and a loss of confidence that would not be favourable for any financial institution,' the rating agency said.

The tone for the day was set by the January reading of the Institute for Supply Management's non-manufacturing index. The gauge had its biggest drop since the indicator was created in 1997 and fell to the lowest level since October 2001, aggravating fears that a recession is at hand.

'The US is no longer a manufacturing economy, it's a service economy, so this number will carry a lot more weight' than last week's surprise rise in ISM's manufacturing index, said Mr Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois. He added that the ISM report will make investors more nervous about other upcoming indicators.

The Dow Jones industrial average was down 370.03 points, or 2.93 per cent, at 12,265.13. The Standard & Poor's 500 Index was down 44.18 points, or 3.20 per cent, at 1,336.64. The Nasdaq Composite Index was down 73.28 points, or 3.08 per cent, at 2,309.57.

Year-to-date, the Dow is down 7.5 per cent while the S&P is 9 percent lower. The Nasdaq has fared worse, dropping 12.9 per cent so far in 2008.

Stocks took a last-minute leg lower after rating agency Fitch said it may cut the AAA-rating on MBIA Inc, the world's biggest bond insurer.

Insurer American International Group Inc was one of the worst Dow performers, falling 4.5 per cent to US$52.93 (S$75.25) on fears about credit exposure.

Investment bank Goldman Sachs & Co slid 5.5 per cent to US$189.86 after a broker downgrade. Citigroup Inc shares dropped 7.4 per cent to US$27.05.

Oil companies such as Exxon Mobil Corp were under pressure on expectations that an economic downturn will slow transportation and manufacturing, crimping demand for energy.

Exxon was down 3.9 per cent at US$82.11, making it the top-weighted drag on the S&P.

Technology shares, seen as particularly vulnerable to a downturn in both business and consumer spending, were under pressure.

Shares of business software maker Oracle Corp fell 4.7 per cent to US$19.25, while BlackBerry device maker Research In Motion Ltd's stock fell 5.2 per cent to US$88.30.

Verizon shares fell 4.6 per cent to US$36.83 while stock of rival AT&T Inc dropped 3.8 per cent to US$36.73 on the NYSE. -- REUTERS

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Japan Stocks Fall On US Recession Fears

TOKYO - Japanese share prices opened lower on Wednesday, with the benchmark Nikkei index falling more than 1 per cent, following a plunge on the Wall Street overnight.

The Nikkei-225 index fell 196.97 points or 1.43 per cent to 13,548.53 in the first minute of trade. -- AFP