While you were sleeping: Stocks slump on GM, bank ratings

Friday 6th March 2009

Stocks on Wall Street slumped after auditors said General Motors may not be able to survive outside of bankruptcy, China's speculated extra stimulus failed to eventuate and Moody's Investors Service said it may cut JPMorgan Chase's credit rating.

The Standard & Poor's 500 Index sank 4.3% to 682.32 and the Dow Jones Composite Index dropped 4.1% to 6595.28. The Nasdaq Composite fell 3.8% to 1303.43.

General Motors tumbled 16% to US$1.84, leading the Dow lower, after the company's annual report showed auditors Deloitte & Touche doubted its ability to continue as a going concern. The automaker is eliminating 47,000 jobs this year to help meet conditions of a US$13.4 billion government aid package and lobby for a further US$16.6 billion. GM has agreement from creditors that the report won't trigger a demand for debt repayment.

JPMorgan fell 15% to US$16.47 after the biggest American bank was cut to 'negative' from 'stable' by Moody's. The ratings company also put ratings of Wells Fargo, the second-biggest US banks, and Bank of America, ranked No. 3 on review. Wells Fargo stock dropped 16% to US$8.14 and Bank of America fell 10% to US$3.22.

Citigroup, which was the world's largest bank back in 2006, fell 9.7% to US$1.02 and briefly fell below US$1.

US Treasury Secretary Timothy Geithner said the Obama administration will act to ensure financial firms don't fail.

The government will "act to make sure the nation's largest financial companies can get government help if needed to avoid collapse," he told the Congress.

Commodity and energy companies tumbled after Chinese Premier Wen Jiabao failed to announce extra fiscal spending plans as had been widely speculated. In his state of the nation address yesterday, Wen said China is likely to reach its target of 8% economic growth this year.

Aluminium producer Alcoa fell 17% to US$5.20 after Bank of America halved the company's share-price target and predicted a wider loss for 2009. Oil company Exxon Mobil slipped 3.8% to US$63.17.

Copper fell on disappointment over China, the world's biggest consumer of the metal. Copper futures for May delivery declined 2.4% to US$1.6535 a pound on the New York Mercantile Exchange. Crude oil for April delivery slipped 45 cents to US$44.93.

Gold futures for April delivery climbed 2.3% to US$927.80 in New York as the global stocks rout stoked the appeal of the precious metal as a haven.

US Labor Department figures showed 639,000 Americans filed initial unemployment applications last week, the fifth week in a row that the number has exceeded 600,000.

Figures tomorrow may show US non-farm payrolls suffered their biggest slump since 1949, according to surveys by Reuters and Bloomberg. The jobless rate probably climbed to 7.9%.

The euro declined against the US dollar and the yen after the European Central Bank cut its main refinancing rate to a record low 1.5% and President Jean-Claude Trichet said further cuts may follow.

The euro fell to $1.2532 from $1.2661 and slipped to 123.02 yen from 125.52 yen. Japan's currency strengthened to 98.14 per dollar from 99.15.

The ECB slashed its main target rate as the region's economy contracts faster than it anticipated.

Bank of England Governor Mervyn King lowered the UK benchmark rate by half a point to 0.5% and said the central bank will start printing money to buy financial assets as part of its support programme. King says the BOE will inject as much as 150 billion pounds into the economy by buying government and corporate bonds.

In London, the FTSE 100 Index fell 3.2% to 3529.86. Insurance group Aviva led the decline, falling 33%, while Legal & General slid 29% and Barclays dropped 24%. Prudential fell 20% and Lloyds Banking Group tumbled 16%.

The Dow Jones Stoxx 600 Index declined 3.6% to 161.59. BHP Billiton, the world's biggest mining company, fell 5.6% on disappointment at the lack of new spending in China.

In Germany, the DAX 30 slumped 5% to 3695.49, led by a 16% slide in Salzgitter after the nation's No. 2 steel company said it is unlikely to break even.

France's CAC 40 fell about 4% to 2569.63, led by a 21% drop for Dexia SA.

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