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Wall Street mauled by Lehman bankruptcy, AIG fears
(Agencies)
Updated: 2008-09-16 06:28 Wall Street had its worst day since markets reopened after the September 11 attacks as fears about the US financial system's stability surged on Monday after Lehman Brothers filed for bankruptcy and insurer AIG struggled for survival. The day followed one of Wall Street's most agonizing weekends ever, which saw the demise of Lehman Brothers and forced Merrill Lynch to accept a takeover by Bank of America Corp.
Financial services companies' shares led a broad and steep decline in major indexes as investors worried about the impact of the latest twists in the credit crisis on the economy and the outlook for profits. "The turmoil continues," said Robert Francello, head of equity trading for Apex Capital, a San Francisco hedge fund. "And it seems to be people underestimated the impact of AIG and what the fallout of that could be." The benchmark Standard & Poor's 500 index fell 59.00 points, or 4.71 percent, to 1,192.70 -- posting its biggest percentage drop since the day that markets reopened after the September 11 attacks in 2001. The S&P 500 also tumbled to its lowest close since October 2005, taking out a key technical support level as it fell. The Dow Jones industrial average slid 504.48 points, or 4.42 percent, to 10,917.51 -- its biggest one-day point drop since September 2001. The Nasdaq Composite Index dropped 81.36 points, or 3.60 percent, to 2,179.91. Lehman, weighed down by losses spawned by the US mortgage crisis, sought bankruptcy protection on Monday following a scramble over the weekend in which it failed to find a buyer. Merrill Lynch, meanwhile, agreed to be bought by Bank of America Corp, the No. 2 US bank. Merrill's stock closed just 0.1 percent higher at $17.06, but Bank of America's shares dropped 21.3 percent to $26.55. "There's some concern they (Bank of America) might have bit off more than they could chew," said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco. Shares of Wall Street firms such as Goldman Sachs and Morgan Stanley also slid on concerns about the viability of their business models, which are similar to those of Lehman Brothers and Bear Stearns, analysts said. Goldman Sachs shares fell 12.1 percent to $135.50, while Morgan Stanley shares dropped 13.5 percent to $32.19. The concern was heightened due to the US government's decision not to provide guarantees for any deal to help Lehman avert bankruptcy. The S&P financial index tumbled 10.6 percent. Savings and loan Washington Mutual fell 26.7 percent to $2, while Wachovia Corp shares dropped 25 percent to $10.71. Shares of AIG, once the world's largest insurer ranked by market value, plummeted 60.8 percent to $4.76. A sharp slide in oil prices to below $100 a barrel helped cap the stock market's losses a bit by boosting airlines and retailers, which are particularly sensitive to higher fuel costs, analysts said. US crude fell $5.47 to settle at $95.71 a barrel on the New York Mercantile Exchange. The S&P energy index lost 6.9 percent. Volume was active on the New York Stock Exchange, where about 1.80 billion shares changed hands, below last year's daily average of about 1.90 billion. On the Nasdaq, about 2.69 billion shares traded, above last year's daily average of about 2.21 billion. Reflecting the market's freefall, about 19 stocks fell for every one that advanced on Monday on the New York Stock Exchange. On the Nasdaq, decliners outnumbered advancers by a ratio of almost 7 to 1. (For more biz stories, please visit Industries)
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