New York: US stocks tumbled to a three-year low on Wednesday as the US rescue of insurer AIG failed to calm a crisis of confidence in global markets and banks were scared to lend to each other.
The Dow fell almost 450 points and the Nasdaq fell nearly 5% in its worst day since the aftermath of the 11 September attacks in 2001 as rattled investors worried about who could be the next victim of the global credit crisis.
Morgan Stanley shares sank 24.2% to $21.75 as investors worried whether it would survive as an independent investment bank in the current environment.
Shares of the other remaining major US investment bank, Goldman Sachs, dropped 13.9% to $114.50 and at one point fell below $100 for the first time in more than three years.
“The fear is, ‘Who is next?´” said John O’Brien, senior vice president at MKM Partners LLC in Cleveland. “It almost feels like people scour the books and say, ‘Who is the next likely target that we can put a short on?´ and that spreads continuous fear.”
The Dow Jones industrial average fell 449.36 points, or 4.06%, to 10,609.66, its lowest level since November 2005. It was the blue-chip Dow average’s biggest percentage drop since Monday, when it fell 504.48 points, or 4.42%, the most since the aftermath of 9/11.
The S&P 500 fell 57.20 points, or 4.71%, to 1,156.39, its lowest level since May 2005 and its biggest percentage drop since 17 September 2001, when the markets reopened after the 11 September attacks.
The Nasdaq also fell the most since 17 September, 2001. It shed 109.05 points, or 4.94%, to 2,098.85, its lowest level since August 2006.
The White House defended government actions to shore up troubled insurance company American International Group Inc, saying it was to prevent broader harm and said it was “concerned about other companies.” AIG is one of the 30 companies whose stocks make up the blue-chip Dow average.
Late on Tuesday night, the Federal Reserve said the Federal Reserve Bank of New York will lend up to $85 billion to AIG in a plan aimed at saving the insurer from a “disorderly failure” that could wreak economic havoc. But on Wednesday, investors doubted whether the rescue plan would be enough. AIG shares sank 45.9% to $2.03 on the New York Stock Exchange.
The Fed’s move was the latest in a string of bailouts, a bankruptcy on Wall Street, and central banks around the world flooding the financial system with money to prevent it from seizing up.
Strategists said the damage threatens to go beyond the financial services sector, hurting corporate profits and spreading panic among increasingly overstretched consumers.
Trading was heavy on the New York Stock Exchange, with about 2.14 billion shares changing hands, above last year’s estimated daily average of roughly 1.9 billion, while on the Nasdaq, about 3.11 billion shares traded, also trumping last year’s daily average of 2.17 billion.
Declining stocks outnumbered advancing ones by 15 to 1 on the NYSE and on the Nasdaq, by 6 to 1.