(Repeats to additional subscribers)
* Morgan Stanley, Wachovia in merger talks - source
* Putnam shuts $15 billion money-market fund
* VIX at multi-year high, financial-sector worries rise
* Central banks launch $180 bln liquidity boost
* Dow off 1 pct; S&P off 1.5 pct, Nasdaq off 1.1 pct
(Updates to midday)
By Steven C. Johnson
NEW YORK, Sept 18 U.S. stocks fell on Thursday
as renewed anxiety about the outlook for U.S. financial firms,
including Morgan Stanley (MS.N), drove a fresh sell-off in
bank shares, reversing earlier gains.
The market's move back into the red wiped out a morning
rally sparked as central banks pumped billions of dollars into
distressed global markets to thaw the credit freeze
Financial shares tumbled, with the S&P financial index
.GSPF down more than 5 percent. Morgan Stanley, one of only
two U.S. investment banks left standing, fell about 40 percent
as investors wondered whether it could continue as an
"There's real panic and fear in the market. People are
talking about financial institutions, and people are going to
start asking whether their money is safe," said Joe Saluzzi,
co-manager of trading at Themis Trading in Chatham, New
The CBOE Volatility Index, or VIX .VIX, Wall Street's
favorite barometer of fear, jumped over 15 percent to a
session high at 42.16, its highest level since October 2002.
The Dow Jones industrial average .DJI was down 119.52
points, or 1.13 percent, at 10,490.14. The Standard & Poor's
500 Index .SPX was down 19.40 points, or 1.68 percent, at
1,136.99. The Nasdaq Composite Index .IXIC was down 24.58
points, or 1.17 percent, at 2,074.27.
"There are no safe havens right now. There are so many
moving parts and so many variables." said Anthony Conroy, head
trader for BNY ConvergEx, an affiliate of the Bank of New
Central banks' efforts to inject cash into the global
financial system were helpful, he said, "but fear and greed
dictate the short-term market, and that's what we're living
through right now. There's a lot of anxiety, and anxiety
Also unnerving for investors was news that the board at
Putnam Funds voted to close its $15 billion institutional
"Putnam Prime Money Market Fund" effective Sept. 17. For
details, see [ID:nN18230180]
Saluzzi said the Putnam fund closing "is huge news,"
adding that "people have no idea where this is going to end.
It's got a mind of its own now."
Earlier this week, the Reserve Primary Fund fell below $1
a share in net asset value because of losses on debt issued by
the now bankrupt Lehman Brothers.
Stocks got a boost from a report that showed an unexpected
rise in a gauge of U.S. mid-Atlantic factory activity in
September, calming worries about the economy.
Meanwhile, the news of added liquidity from the central
banks helped to ease the overnight dollar inter-bank lending
rate, whose sharp spike in the last two days came as a crisis
of confidence caused banks to horde cash. For details, see
"The liquidity issue was a major burden as far as
confidence is concerned," said Alan Lancz, president of Alan
B. Lancz & Associates Inc, an investment advisory firm, based
in Toledo, Ohio. "Anything that the Fed can do to inject
confidence in the system is critical."
But shares of Morgan Stanley, which was among Wednesday's
biggest losers, dropped 39.3 percent to $13.20, while rival
Goldman Sachs (GS.N) shares slid 22 percent to $89.29.
The scramble for deals in the financial sector follows
Lehman Brothers' LEH.N bankruptcy and the takeover of
insurer American International Group (AIG.N) by the U.S.
A source familiar with the situation said Morgan Stanley
was in merger talks with regional banking powerhouse Wachovia
WB.N, whose shares rose 10.5 percent to $10.08.
Fear about slower global growth and the impact on
technology spending continued to weigh on tech stocks. Apple
Inc (AAPL.O), maker of the iPod and iPhone, was a top drag on
the Nasdaq, down 5.1 percent at $121.34.
(Additional reporting by Ellis Mnyandu; Editing by Jan