* U.S. stocks plunge after shift in U.S. bailout program
* U.S. crude futures drop to 21-month low under $56 barrel
* Government debt advances as stock losses spur safety bid
* Yen soars across the board, dollar to yen falls below 95
(Corrects to say "capital needs of both banks and non-bank
financial institutions" in paragraph 2, instead of just
"non-bank financial institutions")
By Herbert Lash
NEW YORK, Nov 12 U.S. stocks plunged on
Wednesday after a shift in how the U.S. government will use its
$700 billion bailout fund fed uncertainty and oil prices slid
to 21-month lows on fears of a deep global recession.
U.S. Treasury Secretary Henry Paulson said he was backing
away from buying troubled mortgage assets and would focus on
the capital needs of both banks and non-bank financial
Banking shares took the brunt of the government's shift in
how to address a credit crisis whose genesis lies in the
slumping U.S. housing market. Shares of Citigroup (C.N) fell
below $10 for the first time since it became a public company.
The shift in government plans caught investors off-guard.
"A lot of clarity is missing," said Paul Nolte, director of
investments at Hinsdale Associates in Hinsdale, Illinois.
"It's just a different direction, and every time that we
hear about this, we're bailing somebody else out and we're
throwing money in another direction without having a clear plan
or objective in mind."
Paulson's comments also underscored the head winds the U.S.
economy faces, adding to the slide in stocks and feeding a bid
for such safe-haven assets as government debt and the yen.
The threat of deflation, which would hurt corporate
profits, also slammed stocks and made risk-averse investors
steady buyers of U.S. Treasuries.
Sterling tumbled to a six-year low against the dollar and a
record trough against the euro after the Bank of England warned
the British economy will shrink sharply next year. Its governor
bolstered expectations of aggressive interest rate cuts.
The pound traded as low as $1.4898 GBP=, the weakest
level since June 2002, and the U.S. dollar fell sharply against
the yen as investors shunned riskier assets.
Oil fell more than 5 percent to less than $56 a barrel at
one point after the U.S. government again chopped its forecast
for global demand due to slowing economic growth around the
U.S. crude CLc1 ,which peaked at more than $147 a barrel
in July, fell $3.17 to settle at $56.16 a barrel, its lowest
settlement since January 2007.
Fresh signs of economic weakness also pummeled stocks. The
top U.S. electronics retailer. Best Buy, warned that the
business climate was the worst in 40 years and said consumer
spending is falling fast, adding more evidence of pending
The Dow Jones industrial average .DJI closed down 411.30
points, or 4.73 percent, at 8,282.66. The Standard & Poor's 500
Index .SPX was down 46.65 points, or 5.19 percent, at 852.30.
The Nasdaq Composite Index .IXIC was down 81.69 points, or
5.17 percent, at 1,499.21.
The technology-rich Nasdaq marked its lowest close since
May 2003, and the S&P's close was less than 4 points off a
Shares of Best Buy (BBY.N) fell 8 percent, and the S&P
retail index .RLX fell 5.8 percent.
Banking shares fell harder, with the S&P financial index
down 6.9 percent. Bank of America (BAC.N) fell 9 percent and
American Express (AXP.N) fell 10.5 percent.
Data from Europe added to the gloom. Euro zone industrial
production fell a larger-than-expected 1.6 percent, while
British unemployment rose to its highest level in more than a
decade in the three months to September.
The Bank of England said the British economy would shrink
sharply next year and inflation could be less than 1 percent.
News from Europe "just reinforced market expectations that
global recession is still in the cards," said Ronald Simpson,
managing director of global currency analysis for Action
Economics in Tampa, Florida. "We're probably going to continue
to see downward pressure on the euro and the pound in
European shares slid, led by banks and oil companies on
worries of more losses and a darkening economic picture, and as
Wall Street fretted over changes to the U.S. government's
financial sector bailout plan.
The FTSEurofirst 300 .FTEU3 index of top European shares
ended 3.4 percent lower at 853.88 points.
BP (BP.L), StatoilHydro (STL.OL) and Banco Santander
(SAN.MC) were the biggest drags on the benchmark index.
BP fell 4.6 percent, StatoilHydro shed 10.7 percent and
Santander fell 7.6 percent.
The benchmark 10-year U.S. Treasury note US10YT=RR rose
29/32 in price to yield at 3.65 percent. The 2-year U.S.
Treasury note US2YT=RR rose 6/32 in price to yield 1.17
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index .DXY up 0.56 percent at 87.559.
The euro EUR= was down 0.33 percent at $1.2476, and
against the yen, the dollar JPY= fell 2.90 percent at 94.86.
U.S. gold futures for December delivery GCZ8 settled down
$14.50 at $718.30 an ounce in New York.
Japan's Nikkei average .N225 shed 1.3 percent on the
lightest volume in about six weeks, while the MSCI benchmark
index of Asian stocks outside of Japan .MIAPJ0000PUS lost 0.8
(Reporting by Leah Schnurr, Wanfeng Zhou, Ellen Freilich and
Frank Tang in New York and Christopher Johnson, George Matlock
and Sitaraman Shankar in London; writing by Herbert Lash;
Editing by Leslie Adler)