While you were sleeping: US stocks fall; slump may be prolonged

Tuesday 24th February 2009

Stocks on Wall Street fell led by tech companies such as Intel Inc. and Hewlett-Packard amid fears the world's largest economy faces a prolonged recession.

The US slump is the worst in at least three decades, according to the National Association for Business Economics. It forecast the US economy will shrink 1.9% this year, bringing its total contraction through the recession to 2.8%.

Banks rallied after US regulators hosed down reports that the nationalisation of Citigroup was imminent. A joint statement from the Treasury, Federal Reserve and the Federal Deposit Insurance Corp. said additional funds would be injected into banks unable to raise funds from elsewhere.

Government aid could be by way of convertible preferred shares which would only be converted to ordinary stock as needed. The statement helped assuage fears that existing shareholders would be wiped out if the government assumed ownership. Citigroup soared 17% to US$2.28 and Bank of America gained 9.8% to US$4.16. JP Morgan Chase jumped 3.1% to US$20.51.

The Dow Jones Industrial Average fell 2.7% to 7169.26, with Intel declining 4.8% to US$12.17 and Hewlett-Packard dropping 4.6% to US$29.80. Alcoa fell 6.8% to US$5.86 and General Electric declined 5.2%b to US$8.89.

The yen weakened against the US dollar and the yen after the pledge by US regulators to inject more funds into banks reduced demand for Japan's currency as a haven.

The dollar rose 1.5% to 94.76 yen at 2:28 p.m. in New York, from 93.35 on February 20, and traded as high as 94.95, the strongest level since December 1. The euro increased 0.9% to 120.72 yen from 119.68, touching 121.93, the highest level since Jan. 19. The euro fell 0.7% to $1.2739 from $1.2826 at the end of last week.

Crude oil fell on expectations the prolonged downturn will sap demand for fuel even as OPEC nations cut production to try to underpin prices.

Crude oil for April delivery fell 3.9% to US$38.49 a barrel on the New York Mercantile Exchange.

Gold futures for April delivery slipped 0.7% to US$995 an ounce in New York. Still, copper, seen as a barometer for economic growth because it is used to make pipes and wires, rose after stockpiles fell. The London Metal Exchange said inventories fell 0.2% to 544,650 tons.

Copper futures for May delivery rose 1.3% to US$1.451 a pound on the New York Mercantile Exchange.

In Europe, declining stocks sent the Dow Jones Stoxx 600 Index to a six-year low as fears widened about the global downturn. ING Groep, Infineon and Dexia SA all fell 12%. Renault declined 11% and UBS AG fell 9.1%. Germany's DAX 30 dropped about 2% to 3936.45 and France's CAC 40 fell 0.8% to 2727.87. In London, the FTSE 100 Index declined 1% to 3850.73.

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