Markets remain on edge as investors seek safety

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Markets remain on edge as investors seek safety

By TIM PARADIS

2 minutes ago

Volatility swept the financial markets again Monday as investors grew

nervous about an amorphous government plan to buy $700 billion in

banks' mortgage debt. Stocks fell sharply, taking the Dow

industrials down more than 370 points, while investors sought safety

in hard assets such as gold and oil, which at one point shot up more

than $25 a barrel.

The credit markets were still uneasy but not showing the frantic

trading they saw last week. And the dollar skidded lower,

contributing to oil's surge.

While investors last week were pleased that federal authorities were

constructing a plan to relieve the nation's banks of their toxic

assets, many weren't waiting for the details to emerge Monday before

seeking safety; selling was heavy across the market, although the

financial sector again took some of the biggest hits. Investors are

not sure how successful the plan might be in unfreezing credit

markets, which many businesses depend on to fund day-to-day

operations.

Bush administration officials and congressional leaders have been

meeting on the rescue plan, the thrust of which congressional leaders

have endorsed. Many market observers are hoping for details of the

plan to emerge by midweek and delays could weigh further on investor

sentiment.

" This government opening of the checkbook — it's a stopgap measure

that will calm people and help us buy a little bit more time but

ultimately what we need to see is more confidence, " said Rob Lutts,

chief investment officer at Cabot Money Management Inc. in Salem,

Mass.

While investors try to gauge the effect of the government's lifeline

they also were absorbing more rapid changes in the banking sector.

Stanley said it is working to sell up to a 20 percent stake to

Mitsubishi UFJ Financial Group Inc., Japan's largest bank.

The announcement comes after the Federal Reserve late Sunday granted

Stanley and Goldman Sachs, Wall Street's last two major

investment banks, approval to change their status to bank holding

companies. The move will allow the companies to set up commercial

banks that will be able to take deposits, significantly bolstering

the resources of both. However, they also will be subject to more

regulation.

That shift came a week after negotiations failed to save Lehman

Brothers Holdings Inc. from bankruptcy. That and a quickly assembled

government bailout for insurer American International Group Inc.

helped lead to a seizing up of the credit markets that spurred

federal officials to formulate a plan to rescue companies from their

bad debt.

The Dow fell 372.75, or 3.27 percent, to 11,015.69. The retreat

follows the Dow's best two-day point gain since March 2000 so some

retrenchment, especially amid the anxiety on the Street, wasn't

unexpected. But the decline erased a gain of nearly 370 points from

Friday.

Broader stock indicators also tumbled. The Standard & Poor's 500

index fell 47.99, or 3.82 percent, to 1,207.09, and the Nasdaq

composite index fell 94.92, or 4.17 percent, to 2,178.98.

Oil's rise of $16.37 to a closing price $120.92 a barrel came as

investors snapped up supplies to cover the October contract, which

expired at the end of Monday's session. Although the contract's

pending expiration helped inflate crude's advance — it was up $25.45

at one point — trading still showed the intensity of emotion in the

market, and still-active contracts also rose sharply.

Gold, also in demand as a safe haven, jumped more than $40.30 to

settle at $909 an ounce.

The yield on the Treasury's 3-month Treasury bill was at 0.88 percent

Monday, down from 0.94 percent late Friday, indicating that investors

were still willing to take low returns on a safe asset. However, the

yield was well above yields around zero at the height of last week's

frenetic buying; yields move in the opposite direction from price.

Short-term Treasurys are seen as the safest place to put cash.

The Treasury's 2-year note's yield was at 2.16 percent, up from 2.13

percent Friday. The yield on the 10-year benchmark Treasury rose to

3.85 percent from 3.81 percent late Friday.

Investors could grow nervous about the trajectory of the government's

bailout plan if it appears that enough progress isn't being made,

observers said. Senate Banking Committee Chairman Dodd, D-

Conn., said Monday he wants the government to receive a stake in the

companies helped by the rescue. Senate Democrats are also calling for

the plan to include aid for homeowners struggling with mortgage

payments and caps on executive compensation.

Treasury Secretary Henry son and Federal Reserve Chairman Ben

Bernanke are scheduled to appear before Congress on Tuesday and

Wednesday for briefings on the economy.

" There is going to have to be some sort of a homeowner relief

package. I think that's part of where the give-and-take process is

going to unfold this week, " said Strauss, chief economist at

Commonfund. " I think the moderates on both sides know something has

to get done. "

The market did get some good news from Microsoft Corp., which said it

plans to repurchase as much as $40 billion of its shares. The

software maker said it completed a previous $40 billion buyback plan.

The company also raised its quarterly dividend to 13 cents from 11

cents. Microsoft rose 24 cents to $25.40.

Stanley said it signed a letter of intent to sell its stake to

Mitsubishi UFJ Financial for an as yet undetermined price.

Stanley fell 12 cents to $27.09.

Meanwhile, Goldman Sachs fell $9.02, or 7 percent, to $120.78

following announcement of its move to become a commercial bank.

Other financial stocks fell sharply amid the continued uncertainty

about the sector. JP Chase & Co. fell $6.25, or 13 percent, to

$40.80, while American Express Co. fell $3.11, or 7.7 percent, to

$37.29. They were the biggest decliners among the 30 stocks that make

up the Dow industrials.

Declining issues outnumbered advancers by about 4 to 1 on the New

York Stock Exchange, where consolidated volume came to 5.22 billion

shares compared with an extremely heavy 9.1 billion traded Friday.

The 2000 index of smaller companies fell 33.30, or 4.4

percent, to 720.44.

Overseas, Japan's Nikkei 225 index climbed 1.42 percent, and Hong

Kong's Hang Seng Index rose 1.58 percent. Britain's FTSE fell 1.41

percent, Germany's DAX declined 1.32 percent and France's CAC 40 fell

2.34 percent.

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