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Stocks plunge, Dow falls more than 400 on credit concerns

(AP)
Updated: 2007-07-27 04:01

NEW YORK - Wall Street suffered its biggest plunge of the year Thursday,
leading global markets lower as investors fled stocks amid increasing
uneasiness about the mortgage and corporate lending markets. The Dow
Jones industrials briefly fell nearly 450 points, while Treasury yields
plunged as investors moved money into bonds.

Investors who had been able to shrug off discomfort about subprime
mortgage problems and a more difficult environment for corporate
borrowing appeared to finally succumb to those concerns after another
disappointing home sales report from the Commerce Department early
Thursday. The Dow surpassed the 416 points it lost on Feb. 27 after a
nearly 10 percent decline in Chinese stock markets.

Traders work on the floor of the New York Stock Exchange after the
opening bell, February 2007. The leading Dow Jones Industrial Average
stock index plummeted over 400 points in afternoon trading Thursday, or
almost three percent, amid housing market and "credit crunch" fears,
traders said. [AFP]

Feeding the selling were concerns that higher corporate borrowing costs
will curb the rapid pace of takeovers that have driven major indexes this
year. Investors also feared the sluggish environment for home sales and
continued defaults in subprime loans would spur debt defaults and weigh
on corporate earnings.

While stocks skidded lower, investors poured money into the safe haven of
the bond market. The soaring price of Treasurys pulled yields lower, and
the rate on the 10-year note plunged to 4.79 percent from late
Wednesday's 4.90 percent.

"Worries that have been out there for the past couple of years are coming
to a head right now," said investment strategist Edward Yardeni,
president of Yardeni Research Inc. "It's show time.."

Thursday's trading was the latest and most extreme in a series of
frenetic sessions over the past month -- many also accompanied by
triple-digit swings in the Dow -- as investors sold on worries about the
subprime fallout or bought on optimism that there wouldn't be any
widespread problems caused by mortgage failures. Many analysts have
described the back-and-forth trading as overwrought and based more on gut
emotion than careful consideration of market and economic fundamentals.

That was their feeling again Thursday.

"The rally in bonds at this point looks a little bit overdone," said Tom
Higgins, chief economist at Payden & Rygel Investment Management in Los
Angeles. "If you're going to park money temporarily then cash I think is
the way to be but I think that we're going to form a bottom. I think
people are going to be legging back into the market."

In late afternoon trading, the Dow plunged 323.28, or 2.35 percent, to
13,461.79. Its intraday drop of 449.77 was the Dow's largest one-day
point decline since it lost 684.81 on Sept. 17, 2001, the first day of
trading after the 9/11 terror attacks.

Broader market indicators also fell. The Nasdaq composite index tumbled
58.04, 2.19 percent, to 2,590.13, while the Standard & Poor's 500 skidded
36.71, or 2.42 percent, to 1,481.38.

The declines triggered a global sell-off in stocks, causing minor losses
in Europe to accelerate rapidly along with the Dow's drop. In Europe,
Britain's FTSE 100 closed down 3.15 percent, Germany's DAX index dropped
2.39 percent, and France's CAC-40 fell 2.78 percent.

Markets were closed in Asia before the rout got under way. Japan's Nikke
stock average closed up 0.88 percent and the Shanghai stock market
composite added 0.52 percent to an all-time high.

Wall Street also found more immediate reasons to sell during the session.
Among them was disappointing home sales figures released by the Commerce
Department, which further eroded confidence in the housing industry's
ability to rebound.

The Commerce Department reported that sales of new homes fell 6.6 percent
last month to a seasonally adjusted annual rate of 834,000 units, more
than triple what had been expected and the largest percentage drop since
sales fell by 12.7 percent in January.

This boosted anxiety after quarterly results from home builders including
Pulte Homes Inc. and D.R. Horton Inc. were squeezed by a sluggish
environment from home sales and continued defaults in subprime loans.

"Wall Street continues to walk a wall of worry," said Ryan Larson, a
senior equity trader at Voyageur Asset Management. "The housing market
continues to be a story, and nobody knows when it will rebound. But, the
real concerns are about credit and oil pushing higher."

Also stunting stocks was a disappointing durable goods report released by
the Commerce Department. Though sales of big-ticket items increased by
1.4 percent last month to a seasonally adjusted $217.07 billion, durable
goods excluding transportation equipment had an unexpected drop.

The Labor Department reported that jobless claims fell by 2,000 to
301,000 in the week ended July 21, slightly better than analysts'
expectations.

Investors also reacted negatively as oil prices climbed to almost $77 per
barrel during the session, stoking the market's worries about inflation.
However, crude pared gains in the afternoon when a barrel of light sweet
crude fell $1.09 at $74.79.

It all led to a frantic day for stock traders.

"It has been pretty volatile as of late, but now fears about a credit
crunch are spreading more than they have in the past -- and that's
causing this drop," said Matt Kelmon, portfolio manager of the Kelmoore
Strategy Funds. "That's hurting the financials, and now energy companies
are joining the party because oil is so high. They make up a large part
of the S&P 500."

Wall Street, now at the peak of second-quarter earnings season, has been
extremely volatile lately -- a signature of typically slower trading that
has been heightened by record runs in major market indexes. On Thursday,
declining issues beat advancers by a 14 to 1 basis on the New York Stock
Exchange, where volume came to almost 1.85 billion shares in late morning
trading.

Both NYSE Group Inc. and Nasdaq Stock Market Inc. reported that their
electronic trading systems were functioning normally, and no problems had
been reported.

Ford Motor fell 4 cents to $7.93, though it had been broadly higher
during the session after it reported cost-cutting and a turnaround in its
core automotive operations pushed its second-quarter to a profit. The
company had posted seven quarters of losses as it grappled with sluggish
sales and a major overhaul of its operations.

Dow component Exxon Mobil's disappointing second-quarter results also
weighed on the overall market, even as energy prices continued to spike.
Shares fell $6.03, or 6.5 percent, to $86.76 after it reported a smaller
profit than analysts expected.

The Nasdaq's losses weren't as steep as other major indexes during the
session due to strength from Apple Inc., which surged $6.36, or 4.6
percent, to $143.62. The iPod and iPhone maker's earnings easily
surpassed Wall Street projections late Wednesday due to strong sales from
its computer offerings.

Home builders sank after several disappointing reports. D.R. Horton fell
70 cents, or 4 percent, to $16.78 after it posted a fiscal third-quarter
loss on charges to write down the value of unsold inventory and deposits
on land.

Pulte fell $1.15 cents, or 5.5 percent, to $19.86 after it posted a
second-quarter loss amid the struggling housing market.

Dow Chemical Co. dropped $2.81, or 6.2 percent, to $42.98 after
second-quarter results missed expectations. The company said profit
during the quarter rose 2 percent as strong international growth offset
weakness in the North American housing and automotive sectors.

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