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Investors flee stocks for safe-haven bonds

February 28, 2007|From Reuters

The New York Stock Exchange's closing bell was greeted with a chorus of boos from the trading floor Tuesday as stocks plunged sharply after a sell-off in China's stock market.

Wall Street's decline was a broad-based affair, dragging most major indexes down between 3% and 4%, their largest one-day losses in years.

Falling stocks outnumbered winners 2,919 to 451 on the NYSE, in very heavy trading.

Investors dumped stocks with the biggest exposure to Chinese demand, including Caterpillar, whose shares slid 3.6%.

U.S.-listed shares of companies based in China and Latin American companies were among the hardest hit, as investors fled emerging markets for safe-haven bonds.

"There seems to be just an air of nothing is safe anymore, there's nowhere to go and people are rotating into bonds as a safe haven," said Andre Bakhos, president of Princeton Financial Group in Princeton, N.J.

The Dow Jones industrial average slid 416.02 points, or 3.3%, to end at 12,216.24.

The Standard & Poor's 500 index dropped 50.33 points, or 3.5%, to finish at 1,399.04. The Nasdaq composite sank 96.66 points, or 3.9%, to 2,407.86.

The Russell 2,000 small-stock index fell 3.8%.

At one point, the Dow fell as much as 546.20 points, or 4.3%, to a session low of 12,086.06.

Both the Dow and the S&P 500 had their worst one-day percentage drop in almost four years, while the Nasdaq had its worst day since December 2002.

Year to date, the Dow now is off 2%. The S&P 500 is down 1.4%, and the Nasdaq is off 0.3%.

Some investors fled stocks for bonds. The yield on the benchmark 10-year U.S. Treasury note fell to 4.51%, down from 4.63% on Monday and the lowest since December, as investors bought bonds in a flight to quality.

The dollar suffered with stocks, falling to 118.22 yen from 120.57 on Monday. The euro rose to $1.324 from $1.319.

The dollar declined against the euro even though most European stock markets also fell sharply for the session.

On Tuesday, the die for the trading day was cast when China's Shanghai composite index dropped almost 9% on fears that the government would crack down on speculation that has driven stock prices there to record highs.

Before Wall Street's opening bell, there was more bad news. A government report showed a much bigger-than-expected drop of 7.8% in January's new orders for durable goods, which added to concerns about a slowdown in economic growth. Durable goods are big-ticket items, including home appliances and computers, intended to last three years or more.

In one sign of how shaken investors were, the CBOE volatility index, known as Wall Street's "fear gauge," surged 70.5% to a session high at 19.01 and then retraced its steps a bit to end at 18.31, a gain of 64.2%.

Howard Silverblatt, senior index analyst at Standard & Poor's, said the stock market's tumble wiped out more than $430 billion in the S&P 500 stock values, almost matching the value of stock buybacks by S&P 500 companies last year.

He estimated that for the overall market, the loss was $600 billion.

All 30 stocks in the Dow finished in the red as investors unloaded shares of companies with big exposure to the Chinese economy.

During the session, all three major U.S. stock indexes broke below their 60-day moving averages -- a sign that the momentum that has carried U.S. stocks through a record run higher from July has begun to stall.

Exxon Mobil was the biggest decliner in both the Dow and the S&P 500, with its stock falling 4.7%, or $3.57, to $71.83.

Caterpillar, the heavy equipment maker that does extensive business in China, dropped $2.43 to $64.83.

A rare bright spot was RadioShack, up 11.9%, or $2.68, at $25.13. The stock was the NYSE's No. 1 percentage gainer after reporting higher quarterly profit because of cutting costs and closing unprofitable stores.

Oil futures, meanwhile, rose 7 cents a barrel to $61.46 in New York trading.

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