Dow tumbles 7%Dow falls below 8,700 for first time since 2003 - on the 1-year anniversary of all-time high.By Alexandra Twin,
CNNMoney.com senior writer
Last Updated: October 9, 2008: 4:17 PM ET
NEW YORK (CNNMoney.com) -- Stocks tanked Thursday afternoon - with the Dow falling nearly 700 points during the session - as panicked investors dumped stocks across the board.
Bank lending remained tight as nervous institutions continued to hoard cash. Treasury prices fell, raising their corresponding yields. The dollar gained versus the euro and the yen. Oil and gold prices fell.
According to early tallies, the Dow Jones industrial average (INDU) lost 679 points, or 7.3%, after hitting its lowest point since May 27, 2003 during the session.
The Standard & Poor's 500 (SPX) index lost 7.6% after touching its lowest point since May 1, 2003. The Nasdaq composite (COMP) lost 5.5% after hitting its lowest point since July 1, 2003.
A key measure of investor fear hit an all-time high: The CBOE Volatility (VIX) index, or the VIX, topped 61.
After seesawing through the morning, stocks turned lower in the afternoon, extending the recent slide. As of 3:35 p.m. ET, the Dow has lost more than 1,900 points over the past seven trading sessions amid growing skepticism that the financial markets can be stabilized.
Investors are trying to get accustomed to the new realities of the market, but aren't able to just yet, despite all the government actions, said Gary Webb, CEO at Webb Financial Group.
"What the Fed has done is eventually going to help turn things around, but people don't believe it yet," Webb said. "They're acting on fear."
Stocks fell Wednesday on pessimism about the economic outlook, despite an emergency rate cut from the Federal Reserve that was coordinated with central banks around the world.
The surprise cut was the latest step taken by the government in an attempt to unfreeze the credit markets and get banks to start lending to each other again. The lack of available capital has made it harder for businesses to function on a daily basis and for consumers to get loans, exacerbating the financial crisis.
On Thursday, the Treasury Department said it was actively looking at buying stakes in some of the country's banks, confirming earlier reports. The move would be made under the $700 billion bank bailout law enacted last week. The main focus of the bailout remains buying bad assets from banks. (Full story)
Movers: A better-than-expected earnings report from IBM (IBM, Fortune 500) had lifted the technology sector through the early afternoon. But any tech advance got washed out in the afternoon selloff. Oil-services stocks declined along with oil prices.
Auto shares tanked after a report said auto sales will hit recession levels this year and sink lower next year. S&P put both GM and Ford's debt ratings on CreditWatch with a negative outlook. General Motors (GM, Fortune 500) lost 31% and Ford Motor fell 20%. (Full story)
To put in perspective just how hard the stock market has been hit over the past 12 months: a year ago today the Dow closed at an all-time high of 14,164.53. As of Wednesday's close, it had lost 33%.
Also a year ago today, the S&P 500 hit an all-time high of 1565.15. As of Wednesday's close, it had lost 37%.
The Nasdaq has never come close to its record of 5,048.62 hit on March 10, 2000, at the end of the tech bubble. But after hitting a six-year high of 2,859.12 last Halloween, the Nasdaq had slipped 40%, as of Wednesday's close.
Lending still frozen: The rate cut was the Fed's latest stab at loosening up credit markets. (Full story)
Earlier in the week, the Fed said it will buy short-term debt needed to finance daily operations directly from businesses. It also said it will make $300 billion available to banks in return for damaged assets, on top of $300 billion already available. And Congress approved the $700 billion bank bailout plan last Friday.
But despite all these developments, credit markets have barely budged.
A Federal Reserve report Thursday showed that the market for commercial paper continued to shrink in the last week. (Full story)
Libor, the overnight bank lending rate, eased to 5.09% Thursday from 5.38% Wednesday, according to Bloomberg.com. However, the levels were still high considering that Libor was at 2.15% a month ago.
Three-month Libor, or what banks charge each other to borrow for three months, rose to 4.75% Thursday from 4.52% Wednesday.
The TED spread, the difference between what banks pay to borrow from each other for 3 months and what the Treasury pays, spiked to an all-time high of 4.14% Thursday before pulling back to 4.07%.
The wider the spread, the more reluctant banks are to lend to each other, rather than from the federal government. When markets are fairly calm, banks charge each other premiums that are not much higher than the U.S. government.
The yield on the 3-month Treasury bill, seen by many as the safest place to put money in the short term, rose to 0.5% Thursday from 0.64% late Wednesday. Last month, the yield on the 3-month bill skidded to a 68-year low around 0% as panicked investors fled equities, accepting virtually no return on their money rather than risk losing it in the stock market.
Treasury prices slipped, raising the yields. The benchmark 10-year note fell 1-7/32, raising the corresponding yield to 3.78% Thursday from 3.63% late Wednesday. Treasury prices and yields move in opposite directions.
On the economic front, weekly jobless claims edged off a seven-year high, but still outpaced forecasts. (Full story)
Company news: IBM (IBM, Fortune 500) reported earnings late Wednesday, ahead of schedule. The Dow component reported higher quarterly earnings that topped estimates and said it is still on track for a 22% jump in earnings in 2008. Shares gained 2%.
After the close of trade, the Fed said it will give AIG (AIG, Fortune 500) a loan of up to $37.8 billion on top of the $85 billion it gave it last month to help the insurance giant avoid bankruptcy. AIG tumbled 18%.
Oil services stocks slumped in tune with a slide in oil prices. Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) were among the biggest decliners on the Dow.
A variety of financial stocks slumped, including Morgan Stanley (MS, Fortune 500), Merrill Lynch (MER, Fortune 500), Wachovia (WB, Fortune 500), Wells Fargo (WFC, Fortune 500) and Citigroup (C, Fortune 500).
Wachovia and Citigroup continue to battle it out for Wells Fargo.
The financial sector was especially weak because the three-week ban on short-selling in the sector ended late Wednesday. The SEC had put the rule into effect in mid-September in an effort to temper the steep selloff in bank stocks.
Short-selling is a process in which traders place bets that a stock will fall. Some market watchers think the process played a role in the accelerated bloodletting in financial stocks during the summer and early fall.
Oil and gold: U.S. light crude oil for November delivery fell $1.05 to $85.54 a barrel on the New York Mercantile Exchange on continued bets that the slowing global economy will hurt demand. (Full story)
Oil prices have tumbled on bets of slowing demand since the price of crude hit an all-time high of $147.27 a barrel on July 11.
COMEX gold for December delivery fell $20 to settle at $886.50 an ounce.
Other markets: In currency trading, the dollar gained against the euro and the yen.
The price of gas decreased for the 22nd consecutive day, according to a survey of credit card activity by motorist group AAA. (Full story)
