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Dow enters bear market as US stocks slide


NEW YORK - The Dow sank into a bear market on Wednesday as US stocks fell on growing concerns about the toll that record oil prices are taking on the economy and corporate profits.


After flirting with bear market status for several sessions, the Dow closed 20 per cent below its October peak as it was no longer able to withstand the avalanche of warnings about banking losses, surging inflation fears and weakening consumer confidence.

Merrill Lynch struck a negative chord early in the session when it downgraded General Motors (GM), saying the automaker will need US$15 billion to shore up liquidity. Merrill added that bankruptcy is 'not impossible' for GM if the auto market continues to slump, sending GM's shares down more than 15 per cent.

Adding to the gloom, US Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy's slowdown.

Nervousness abounded a day before the key monthly jobs report after data released on Wednesday showed US private employers slashed 79,000 jobs in June. The ADP data raised expectations for an even more disappointing payrolls report.

Investors sold shares of big-cap technology companies such as Intel Corp and industrial conglomerates like Caterpillar on concerns about economic growth and rising oil prices.

'This market is not for the faint-hearted right now,' said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.

'I really don't see us getting out of this quagmire, this dark zone anytime soon - I don't believe we'll see a whole lot of positive rhetoric surrounding earnings coming up, given record oil prices and the concern about the global economy slowing.'

The Dow Jones industrial average tumbled 166.75 points, or 1.46 per cent, to 11,215.51.

The Standard & Poor's 500 Index lost 23.39 points, or 1.82 per cent, to close at 1,261.52, while the Nasdaq Composite Index slid 53.51 points, or 2.32 percent, to end at 2,251.46.

The S&P 500 is down 19.4 per cent from its October closing peak, while the Nasdaq entered a bear market in February.

Coal mining company shares, including Consol Energy, were hammered throughout the session as the price of coal fell. The Dow Jones coal index plummeted 13.9 per cent, led by a plunge of 14.6 per cent in the shares of Consol Energy.

Economic bellwether Caterpillar was the biggest drag on the Dow, as its shares dropped 5 per cent to US$70.42. Shares of GM fell 15.1 per cent to US$9.98. Intel Corp's stock lost 3 per cent to US$20.93.

There were some bright spots, however. Deutsche Bank helped calm some of the concerns about banks when Germany's biggest lender said it now expects a quarterly profit compared with a loss a year ago and would not need any more capital.

Deutsche Bank's announcement underpinned gains in the shares of JPMorgan Chase & Co, up 1.7 per cent at US$34.60.

Lehman Brothers' beaten-down stock rose 6.7 per cent to close at US$22.36 on the NYSE after CNBC reported that the investment bank is issuing stock to employees as a retention effort.

The ADP's employment report aside, Wednesday's data brought some brighter news as well, with a boost in demand for aircraft lifting new orders at US factories by an unexpectedly large 0.6 per cent in May.

US crude for August delivery jumped to a record US$144.32 a barrel.

Trading was moderate on the New York Stock Exchange (NYSE), with about 1.52 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.42 billion shares traded, above last year's daily average of 2.17 billion.

Declining stocks trounced advancing ones by a ratio of about three to one on both the NYSE and the Nasdaq. -- REUTERS




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