US stocks finish sharply lower amid lingering economic fears; Dow down 219.35 points

Source: Agencies  |   2008-12-19  |     ONLINE EDITION

WALL Street extended its losses yesterday, as a negative ratings outlook on financial and industrial powerhouse General Electric Co shook an already fragile investor psyche and sent stocks tumbling.

After moving within a narrow trading range for much of the session, the Dow Jones industrial average dropped nearly 220 points. The broader Standard & Poor's 500 index lost more than 2 percent.

Stocks struggled to find a direction in the early going yesterday as investors sifted through a number of signs about the economy, including more layoffs and dismal earnings forecasts.

But a negative outlook from Standard & Poor's on GE added further pressure on the market.

Standard & Poor's Ratings Service lowered its outlook for GE and its GE Capital finance arm to negative from stable. The ratings agency affirmed their Triple-A ratings, but said there is a one-in-three chance they could lose them because of the ongoing financial struggles at GE Capital.

GE shares fell US$1.43, or 8.2 percent, to US$15.96.

At the same time, energy stocks tumbled as oil prices plunged. Crude briefly dropped below US$36 a barrel yesterday on worries of a drastic pullback in energy spending, even after a record production cut from OPEC earlier this week.

Oil prices have been on a downward march since reaching a high of near US$150 a barrel in July.

"The fear is that if oil does fall down to US$25 or US$30 a barrel, that could indicate that the economy is even weaker than market perception and that obviously is negative," said Peter Cardillo, chief market economist for Avalon Partners.

Chevron Corp fell US$3.79, or 4.9 percent, to US$73.03, while Exxon Mobil Corp dropped US$4.06, or 5 percent, to US$77.

The expiration Friday of some options contracts for December added to the downward pressure, Cardillo said.

Yesterday's news reinforced perceptions that the economy's troubles are far from over. The market remains unsure how steep and prolonged the recession will be.

Wall Street's sharp decline late yesterday overshadowed some of investors' earlier enthusiasm over a potential economic stimulus package. President-elect Barack Obama's aides are working on assembling a two-year plan that could cost US$850 billion and include new jobs, middle-class tax relief and expanded aid for the poor and the unemployed.

The Dow fell 219.35, or 2.49 percent, to 8,604.99.

The Standard & Poor's 500 index fell 19.14, or 2.12 percent, to 885.28, while the Nasdaq composite index fell 26.94, or 1.71, to 1,552.37.

The Russell 2000 index of smaller companies fell 7.42, or 1.52 percent, to 479.17.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 1.25 billion shares.

Further weighing on the market were lackluster economic data and mixed corporate earnings reports.

The Labor Department reported that initial jobless claims fell by more than economists anticipated to 554,000 last week. The claims remain near last week's 26-year high, and the four-week moving average for claims is up, but investors had been bracing for a gloomier reading.

Meanwhile, a private research group's measure of the economy's health fell again in November and its six-month rate of decline hit the worst level since 1991.

"Most of the data was better than the market expected, but showed that the economy is still contracting," Cardillo said.

FedEx Corp reported a 3 percent rise in quarterly earnings, but announced further cost cuts as demand continues to wane. Ingersoll-Rand Co cut its fourth quarter earnings forecast by more than half, and motor home maker Winnebago Industries Inc. swung to a loss.

But Discover Financial Services swung to a profit and homebuilder Lennar Corp's quarterly loss was smaller than last year's.