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Markets tank on revived credit fears
Dow finishes more than 360 points lower after Citigroup downgrade as Fed bounce is wiped out.
By David Ellis, CNNMoney.com staff writer
November 1 2007: 4:13 PM EDT


NEW YORK (CNNMoney.com) -- The Dow industrials suffered one of its biggest declines of the year Thursday, plummeting more than 360 points after a Citigroup downgrade served as a blunt reminder to Wall Street that the credit market crisis is not over.

The Dow Jones industrial average (Charts) finished 362 points, or about 2.6 percent, lower based on early tallies.



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The broader S&P 500 index (Charts) lost 2.6 percent, while the tech-fueled Nasdaq slipped nearly 2.3 percent.

Trading curbs remained active on the New York Stock Exchange after going into effect early in the session to limit the market's downside.

Oil prices reached a new record high of $96.24 a barrel in electronic trading earlier Thursday. But light, sweet crude for December settled 42 cents lower to $93.07 a barrel in afternoon trade on the New York Mercantile Exchange.

Treasury prices gained, lowering the yield on the benchmark 10-year note to 4.34 percent from 4.47 percent a session earlier. Prices and yields move in opposite directions.

Here's what was moving before the close:

Leading the 30-stock Dow index lower was Citigroup (Charts, Fortune 500), whose stock fell 6.9 percent in afternoon trade to its lowest level in 4-1/2 years.

Citi shares tumbled after a CIBC World Markets analyst downgraded the company's stock and added that Citigroup may have to cut its dividend in order to raise $30 billion in capital.

News of the downgrade hit Citi stock and sparked fears that other major financial players were harder hit by this summer's subprime crisis than originally anticipated. Some investors worry that because the value of many of these mortgage-backed securities has not been determined, firms like Citi may have to take additional losses.

Shake-ups on the Street
"It's continued concern about subprime and the pricing of these securities," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.

"Even though they took writedowns, I think there's a lot still sitting on their books and a general concern that they may have to see further reductions."

Adding to the negative sentiment was Credit Suisse (Charts), which reported a 31 percent drop in profits Thursday - hurt by the U.S. housing market and weakened demand for buyout loans.

Also pressuring stock were disappointing results from oil major Exxon Mobil (Charts, Fortune 500), which reported a bigger-than-expected drop in quarterly earnings, driving down its shares by 4 percent.

Among individual issues, 29 out of 30 Dow components finished lower.

Stocks surged just a day earlier after the Federal Reserve delivered the quarter percentage point rate cut that Wall Street was hoping for and lowered its key lending rate to 4.5 percent.

But with the Fed decision behind them, investors shifted their attention to a host of economic reports delivered Thursday.

The government reported that personal income and spending by individuals rose less than expected in September, while personal income rose in line with expectations.

The report also included a key inflation measure known as the core PCE deflator, which measures prices paid by consumers for items other than food and energy. It showed a 1.8 percent increase, within the Fed's comfort level.

Manufacturing in the United States grew less than expected during the month of October, the Institute for Supply Management reported, suggesting that woes in the housing market could be spreading to the broader economy.

And initial jobs claims came in at 327,000, a bit less than forecasts and the previous week's reading.

But the biggest economic reading for the week still lies ahead for investors. Due out before the opening bell Friday is the monthly employment report for October.

Both economists and Wall Street will be closely watching for signs whether this summer's mortgage crisis has spilled over to the broader economy.

In other corporate news, Sprint Nextel (Charts, Fortune 500) reported a steep drop in profits Thursday, hurt by its wireless business.

Shares of footwear-maker Crocs (Charts) tumbled 36 percent after it forecast late Wednesday that its 2007 sales would miss Wall Street expectations.

Ford Motor (Charts, Fortune 500) was the first to report October sales Thursday, reporting a 9.5 percent decline. Sales at crosstown rival General Motors (Charts, Fortune 500) improved during the month, outpacing gains at Japanese rival Toyota Motor (Charts).

Market breadth was negative. Losers beat winners by nearly 7 to 1 on the New York Stock Exchange on volume of 1.57 billion shares. Decliners topped advancers by 5 to 1 on the Nasdaq as 2.45 billion shares traded hands.

The dollar, which hit yet another record low against the euro Wednesday after the Fed rate cut, recovered slightly on the European currency but was lower versus the yen.

Gold prices, which Wednesday topped $800 for second straight session before retreating $1.60 to $793.70