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Wall St. drops as Bush rescue plan disappoints
January 19, 2008 / 1:49 AM / 10 years ago

Wall St. drops as Bush rescue plan disappoints

<p>The numbers board can be seen shortly after the day's start of the New York Stock Exchange in New York January 9, 2008. REUTERS/Lucas Jackson</p>

NEW YORK (Reuters) - Stocks tumbled for a fourth day on Friday to close out the worst week for the S&P 500 in five years on worry that a White House effort to boost the economy may not prevent a recession.

Financial firms absorbed the brunt of the selling, again, on worries over spreading subprime mortgage fallout, and were joined in the rout by telecommunications companies after Sprint Nextel announced big subscriber losses and thousands of layoffs.

An early rally off of strong earnings from General Electric and IBM, as well as a surprise pickup in consumer sentiment, evaporated after President George W. Bush called for a package worth up to $150 billion in tax cuts and other measures to shore up the economy.

“The fear is that the plan, and even the Fed, may not have enough firepower to turn the path to recession around,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research in Cincinnati.

The Dow Jones industrial average .DJI was down 59.91 points, or 0.49 percent, at 12,099.30, its lowest close in 10 months.

The Standard & Poor's 500 Index .SPX was down 8.06 points, or 0.60 percent, at 1,325.19, a 16-month low. The Nasdaq Composite Index .IXIC was down 6.88 points, or 0.29 percent, at 2,340.02, a 10-month low.

For the week, the S&P fell 5.41 percent, its biggest weekly percentage drop since July 2002. The Dow fell 4.02 percent, and the Nasdaq slid 4.10 percent.

U.S. stock markets will be closed on Monday for the Martin Luther King Day holiday.

In another troubling development, bond insurer Ambac ABK.N on Friday lost its vital triple-A credit rating from Fitch. The cut, the first by one of the top ratings agencies on a bond insurer, puts at risk billions of dollars of corporate and municipal bonds covered by the company. Ambac and MBIA, the largest U.S. bond insurer, are also on watch for possible downgrades by Moody’s Investors Service.

MBIA Inc’s (MBI.N) shares dropped 7.3 percent to $8.55. Ambac’s ABK.N stock dropped 0.64 percent to $6.20, following a 51.9 percent slide on Thursday.

Shares of American International Group (AIG.N) fell 4.1 percent to $52.05 after C.V. Starr, a company controlled by the insurer’s former chief executive, Maurice “Hank” Greenberg, said it had hired an investment bank to advise it on its stake in AIG. Analysts said some investors worried about a possible sale of Greenberg’s 12 percent stake in AIG.

Sprint Nextel shares fell 24.8 percent to $8.70 after the No. 3 U.S. mobile phone service reported deeper-than-expected subscriber losses and said it would cut about 4,000 jobs.

Shares of Schlumberger Ltd (SLB.N), the world’s largest oil field services company, fell 3.6 percent to $79.52 after its earnings missed Wall Street estimates because of weakness in its U.S. onshore market.

Semiconductors lent some support to the Nasdaq, with shares of Xilinx (XLNX.O) jumping 12.5 percent to $21.53 after the maker of programmable chips posted a higher-than-expected profit. Shares of Advanced Micro Devices AMD.N, the world’ second biggest chip maker, rose 11.51 percent to $7.07 after the company posted a narrower-than-expected loss. An index of semiconductors .SOXX gained 2.4 percent.

Shares of International Business Machines rose 2.3 percent to $103.40 after it forecast 2008 earnings well ahead of Wall Street expectations as strong growth abroad made up for weaker results in the United States.

General Electric shares climbed 3.3 percent to $34.31 after it posted a rise in quarterly earnings, also on strong demand from outside the United States.

But those gains failed to support the market.

“There is so much fear in the market that gains just don’t stick. Traders are using any attempt at a rally to sell out of their positions,” Sparks said.

Trading was active on the New York Stock Exchange, with about 2.3 billion shares changing hands, above last year’s estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.9 billion shares traded, also ahead of last year’s daily average of 2.17 billion.

Declining stocks were outnumbering declining/advancing ones by a ratio of about 2 to 1 on the NYSE and on Nasdaq.

Editing by Leslie Adler

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