United States stocks plunged Thursday with the Dow Jones falling to its second worst close so far this year, as reports of liquidating hedge funds triggered more credit-related anxiety
The Dow Jones Industrial Average (DJI) slumped 387 points, 2.8%, to 13, 270, with all but one of its 30 components ending in the red. The S&P 500, which is heavily influenced by financial shares, took the brunt of the losses, losing 44 points, or 3%, to 1,453 and the Nasdaq Composite fell 56 points, or 2.2%, to 2,556. European indexes had slumped earlier after BNP Paribas froze three funds saying the market for some of the assets they contained had disappeared. At the same time, the European Central Bank said it was pumping money into the banking market to boost liquidity. FTSE lost 1.92%; Paris CAC 40 2.17%; Madrid's IBEX35 1.11% and Germany's DAX, 2%. In Latinamerica markets followed the global trend with Brazil's Bovespa loosing 2.75%; Argentina's Merval, 3,27% the worst second fall this year; Mexico's IP C lost 2.54% and Chile's IPSA, 1.83%. In recent months, the number of loan defaults has increased because of higher interest rates, raising concerns that the wobble in the housing market will affect other parts of the economy and then start hurting other nations. The worry is that should banks make losses then it would hurt their earnings and their profitability making them less willing to fund the takeovers and buyouts that have underpinned much of the stock markets' recent gains. The recent collapse of American Home Mortgage, the 10th largest lender in the US, has intensified those concerns. At the same time, banks have suddenly started charging significantly more for the money they lend to each other, signaling that they are looking to limit their risks, analysts said. The declines in the US markets came despite attempts by President George W Bush to calm market fears. Speaking after a meeting with his top economic advisers, President Bush acknowledged there had been "disquiet" on Wall Street over the housing slump. But President Bush said he believed the markets were set for a "soft landing". President Bush said he expected the markets to focus increasingly on the underlying health of the global economy and robust US prospects. "The underpinnings of our economy are strong," he said, adding that second-quarter growth had been strong, while both inflation and unemployment remained low. "So the conditions for the marketplace working through these issues are good. My hope is that the market, if it functions normally, will be able to yield a soft landing".