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Dow Jones Records Its Worst 3-Day Decline Since 2002

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By TIM PARADIS, The Associated Press

Published: January 18, 2008

NEW YORK - Wall Street extended its 2008 plunge Thursday, tumbling after a regional Federal Reserve report showed a sharp decline in manufacturing activity and as investors feared that downgrades of key bond insurers could trigger further trouble with souring debt.

The Dow Jones industrial average lost more than 300 points, or nearly 2.5 percent, giving the index its lowest close since March and its worst three-day percentage decline since October 2002. The Standard & Poor's 500, the index closely watched by market professionals, fell nearly 3 percent Thursday.

Stocks opened higher but quickly gave up their gains after the Philadelphia Federal Reserve said its survey of regional manufacturing activity registered a negative 20.9 from a revised reading of negative 1.6 in December. The latest number came in well short of what Wall Street had been expecting and underscored the seriousness of the economic worries that have gripped Wall Street and Washington in recent weeks.

Credit concerns also dogged Wall Street after rating agency Moody's Investors Service placed bond insurer Ambac Assurance Corp. on review for a possible downgrade. That possibility alarmed investors because it would place all bonds insured by Ambac on review as well. Wall Street is concerned that bond insurers would be unable to absorb a spike in claims.
Investor fears of a slowing economy again dominated trading.

"The Philadelphia Fed just announced dreadful numbers," said John O'Donoghue, co-chief of equities at Cowen & Co. He said if one reviews Philadelphia Fed data for similar numbers, one is taken back to the 2001 to 2002 recession.

"It's not rocket science - the economy is slowing dramatically, and it's being reflected in economic reports."

The Dow, which had been up more than 50 points early in Thursday's session, closed down 306.95, or 2.46 percent, at 12,159.21.

The Dow is now off 8.33 percent for the year; there have been just 12 trading days in 2008, but the index's frequent triple-digit losses have forced it to give back its 2007 gains. The Dow had its lowest close since ending the March 16, 2007, session at 12,110.41.

The Dow's decline also left it about 150 points above 12,000, a level it has not closed below since November 2006.

The broader market indicators also plummeted. The S&P 500 index lost 39.95, or 2.91 percent, closing at 1,333.25 and leaving it with a year-to-date loss of 9.2 percent. The Nasdaq dropped 47.69, or 1.99 percent, to 2,346.90, giving it a 2008 deficit of 11.51 percent.

Thursday brought the lowest close for the S&P 500 since October 2006 and the worst for the Nasdaq since March. Both indexes have also forfeited all of their 2007 gains.

Declining issues outnumbered advancers by more than 5-to-1 on the New York Stock Exchange, where volume came to a heavy 2.17 billion shares compared with 2.11 billion traded Wednesday.

Bond prices rose as stocks fell and anxious investors sought the safety of government-issued securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.61 percent from 3.68 percent late Wednesday. The dollar was mixed against other major currencies.

The Chicago Board Options Exchange's volatility index, known as the VIX and often referred to as the "fear index," jumped nearly 17 percent Thursday.

Light, sweet crude fell 71 cents to settle at $90.13 a barrel on the New York Mercantile Exchange after Federal Reserve Chairman Ben Bernanke's prediction of slower economic growth this year. Slowing growth could dampen demand for oil.

Economists had expected the Philadelphia index would come in at a negative 1.5, according to Dow Jones Newswires. Instead, the negative 20.9 figure was the weakest since October 2001, when the economy was reeling from the shock of the Sept. 11 attacks.

Overseas on Thursday, Japan's Nikkei stock average closed up 2.07 percent, Britain's FTSE 100 finished down 0.68 percent, Germany's DAX index fell 0.78 percent and France's CAC-40 fell 1.31 percent.

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