U.S. stocks fell sharply today, with the Dow Jones industrial average closing below the 10,000 level for the first time in almost four years amid mounting fears that a continued credit crunch will push the global economy into a recession.
The Dow Jones industrial average closed down 369.88, or 3.58%, at 9,955.50; the S&P 500 fell 42.34, or 3.85%, ending at 1,056.89; and the Nasdaq composite closed down 84.43, or 4.34%, to 1,862.96. All numbers are preliminary.
The last time the Dow closed below 10,000 was Oct. 26, 2004, when the blue-chip index ended at 9,888.48.
Adding to the gloom was testimony before the House Committee on Oversight and Government Reform by Richard Fuld, CEO of Lehman Brothers Holdings Inc., who said his firm was pushed into bankruptcy last month by a storm of fear. This fueled concern that other financial institutions might be vulnerable to the credit turmoil.
The CBOE Volatility index, the popular fear gauge, jumped above 50 to 51.22, its highest point in 18 years.
The global sell-off started overnight, with the German government forced to offer a $68 billion rescue package for Hypo Real Estate Holding AG.
The U.S. dollar jumped against the euro today on the news, while the EuroStoxx 600 index fell 7.6%. On prospects of lower demand, oil prices fell, with the light sweet crude contract for November delivery closing down $6.07 a barrel at $87.81 on the New York Mercantile Exchange.
In a bid to relieve stress, the Federal Reserve announced this morning it is paying interest on bank reserves.
The Fed took advantage of the new powers (under the Emergency Economic Stabilization Act of 2008, enacted Friday) it was granted by announcing that it will begin to pay interest rates on reserves it holds on behalf of depository institutions, an action that gives the Fed the ability to engage in quantitative easing of monetary policy and which can be as powerful as interest rate cuts, said Tony Crescenzi, chief bond market strategist at Miller Tabak in New York.