Dow Jones index plummets 500 points
The index closes down 4.4%, the biggest one-day loss since the 2001 terrorist attacks. The travails of Lehman, Merrill Lynch and AIG send investors rushing to Treasury bonds as a safe haven.
Stocks plunged and investors rushed for the safety of Treasury bonds today amid a dramatically altered financial landscape that raised new fears about the struggling economy.
The Dow Jones industrial average ended the day down 504.48 points, or 4.4%, to 10,917.51. It was the worst one-day drop since the blue-chip index plunged 685 points, or 7.1%, on Sept. 17, 2001 -- the day markets reopened after the terrorist attacks.
The selling accelerated despite efforts by Treasury Secretary Henry M. Paulson Jr. to calm investors. He told reporters in Washington that the American people could remain confident in the "soundness and resilience in the American financial system."
But, Paulson added, "until we stem the housing correction . . . we will continue to have turmoil in the financial markets."
The bankruptcy of investment bank Lehman Bros. Holdings Inc., Merrill Lynch & Co.'s surprise sale to Bank of America Corp. and fear that insurance giant American International Group could be mortally wounded all left many Wall Street players in shock -- and looking for places to hide, said Dan McMahon, veteran trader at Raymond James & Associates in New York.
"People are still wanting to take a lot of risk off the table," he said.
That was evident in the huge appetite for Treasury bonds today, which drove yields on the securities sharply lower.
The yield on the 10-year Treasury note sank to 3.43%, down from 3.72% on Friday and the lowest since early April. That should help pull mortgage rates lower, giving an assist to the housing market.
But as financial institutions hoarded cash, the banking system's key short-term interest rate rocketed as high as 6% early in the day, from 2%. The Federal Reserve responded by pumping $70 billion into the system to pull the rate back down and keep money flowing.
Amid deep uncertainty about the financial system, big investors "just don't want to part with their cash very easily," said Brian Edmonds, head of interest rates at bond dealer Cantor Fitzgerald in New York.
Overnight, stock markets in Asia and in Europe had plummeted as foreign investors reacted to the unprecedented shake-up in the U.S. financial system -- the latest fallout from the housing market debacle.
Most European stock market indexes fell between 3.5% and 4%. Stocks tumbled 6.2% in Russia and 4.1% in Taiwan.
