New York: U.S. stocks dropped on Thursday, pushing the three major indexes 1 percent lower, on fears that deteriorating credit market conditions could slow economic and profit growth.
In a sign of tightening credit, Countrywide Financial Corp. , the biggest U.S. mortgage lender, said it had to draw down an entire $11.5 billion bank credit line to fund its operations.
For a short while both the S&P and Nasdaq fell 10% below their respective 52-week highs from mid-July -- a threshold professional investors define as a market correction.
“The market is trying to decide that the decline in the S&P 500 is a start of a new downtrend or just a correction in an uptrend,” said John Kosar, market technician and director research at Asbury Research in Chicago.
The Dow Jones industrial average was down 146.81 points, or 1.14%, at 12,714.66. The Standard & Poor’s 500 Index was down 17.39 points, or 1.24%, at 1,389.31. The Nasdaq Composite Index was down 30.70 points, or 1.25%, at 2,428.13.
Countrywide’s drawdown showed how liquidity strains have spread beyond subprime lenders to larger companies that made predominantly higher-quality loans. Its shares fell 16.8% to $17.71 in its sixth consecutive session of declines.
Inconsistent comments from government officials were also adding to markets’ disarray. U.S. Treasury Secretary Henry Paulson told the Wall Street Journal he expects the financial markets’ turmoil to “extract a penalty” on the growth of the U.S. economy. But St. Louis Federal Reserve President William Poole told Bloomberg that the turmoil had not undermined the economy and saw no need for a rate cut at present.
Adding gloom on the housing front was a government report that showed home construction starts fell to their lowest in nearly 10 years in July, while building permit activity dropped its lowest in nearly 11 years.
Shares of luxury home builder Hovnanian Enterprises Inc. fell 10.2% to $11.50. Builder Lennar Corp. was down 5.2% to $28.46 on the NYSE.