NEW YORK (Reuters) - Stocks sank on Wednesday for the third day after the United States backed away from using its $700 billion bailout to mop up sour mortgages and added to uncertainty about how the government plans to revive bank lending.
A dismal forecast from Best Buy added to anxiety about a worsening economy after the largest U.S. electronics chain said consumers were slashing spending, creating the worst climate in the company’s 42-year history.
A sell-off in large-capitalization technology companies took the Nasdaq down to its lowest closing level in more than five years, beating the closing low hit at the end of October. The S&P 500 came close to retesting October’s closing low.
After the closing bell, Intel Corp (INTC.O) added to the negative outlook for technology, sending stock index futures lower. The tech bellwether warned its revenue would be about 14 percent below its previous forecast due to weak demand around the globe.
Treasury Secretary Henry Paulson said the Treasury’s focus now would be on shoring up financial institutions with direct investments and his comments served to underscore the extent of the problems in the U.S. economy.
When Congress approved the $700 billion bailout plan last month, the stated purpose was to purchase toxic assets, especially mortgage-backed securities, from banks.
“Investors are confused. We started going down the route that we were going to buy the bad assets. Now we’re going to make everything a bank holding company,” said Craig Hester, CEO of Hester Capital Management in Austin, Texas.
Investors sold off financial stocks amid questions about what the impact of the new plan will be on the sector. Among the casualties was Citigroup (C.N), which fell below $10 for the first time in its history. Citigroup dropped 10.7 percent to end at $9.64 on the New York Stock Exchange.
The Dow Jones industrial average .DJI slid 411.30 points, or 4.73 percent, to 8,282.66. The Standard & Poor's 500 Index .SPX plummeted 46.65 points, or 5.19 percent, to 852.30. The Nasdaq Composite Index .IXIC lost 81.69 points, or 5.17 percent, to 1,499.21, its lowest close since May 2003.
Apple Inc (AAPL.O), maker of the iPod and the iPhone, was the biggest drag on the Nasdaq, falling 4.9 percent to $90.12, while Intel gave up 7.2 percent at $12.55 after the bell.
Best Buy lost 8 percent to $21.97. The reduced forecast came on the heels of Circuit City Stores Inc CCTYQ.PK filing for bankruptcy protection, providing further evidence of anemic consumer spending.
In an ironic twist, the deeply troubled auto sector provided one of the few bright spots in the day.
General Motors (GM.N) was the only advancer among the 30 Dow components amid hopes the automaker will get the financial assistance it desperately needs. GM, Ford (F.N) and Chrysler LLC are seeking $25 billion in urgent federal assistance as their cash burn rates rise.
GM’s stock climbed 5.5 percent to $3.08, while Ford gained 2.2 percent to $1.84.
The energy sector dove as the price of oil continued declines as the U.S. government cut its global demand growth forecast. U.S. front-month crude oil fell $3.17 to settle at $56.16 a barrel, the lowest close since the end of January 2007.
Chevron (CVX.N) and Exxon Mobil (XOM.N) were the two top drags on the Dow. Chevron lost 8.5 percent to $67.28 and Exxon dropped 5.1 percent to $68.93, while an index of S&P 500 energy companies .GSPE slid 7.3 percent.
On the earnings front, department store operator Macy’s Inc (M.N) posted a narrower-than-expected quarterly loss as consumers curbed their shopping. Macy’s fell 11.1 percent to $8.37.
Trading was moderate on the New York Stock Exchange, with about 1.46 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.20 billion shares traded, above last year’s daily average of 2.17 billion.
Declining stocks far outnumbered advancing ones on the NYSE by a ratio of about 12 to 1, while on the Nasdaq, about seven stocks fell for every one that rose.