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NEW YORK: US shares went into a freefall on Monday as part of a global rout after a bankruptcy at Lehman Brothers stoked fears about contagion affecting world markets and the economy.
The blue-chip Dow Jones Industrial Average tumbled below 11,000 with a loss of 504.48 points (4.42 percent) to 10,917.51, its largest one-day point loss since the reopening after the September 2001 terrorist attacks.
The Nasdaq composite plummeted 81.36 points (3.60 percent) to 2,179.91 and the broad-market Standard & Poor's 500 index lost 59.00 points (4.71 percent) to 1,192.70.
Investors ran for cover after the bankruptcy filing by investment firm Lehman Brothers, which failed to find a buyer during a weekend of crisis talks, and the emergency sale of Wall Street rival Merrill Lynch.
Also causing fear was the worry that contagion may strike American International Group, one of the world's biggest insurers, whose shares plunged over 50 percent.
"Everything else is pushed aside as the stock market attempts to figure out what the sale of Merrill and bankruptcy of Lehman will do to both the stock market and the economy," said Al Goldman at Wachovia Securities.
"The first response will be to hit the stock market hard as the market hates uncertainty."
Analysts at Charles Schwab & Co. said in a briefing note that markets feared more troubles ahead.
"Lehman Brothers' decision to file bankruptcy and worries that the credit crisis could claim American International Group as the latest casualty are fuelling the fears on the Street," the analysts said.
"Merrill's purchase has traders fretting that hidden problems abound and more firms could be looking at a fate similar to Lehman's."
Some feared a financial tsunami as firmed linked to Lehman Brothers scramble to cover their positions, possibly leading to more selling pressure.
In anticipation of a further credit shock, the Federal Reserve on Sunday moved to ease liquidity for banks and brokers by relaxing collateral requirements for central bank loans. In a related action, 10 major global banks pledged a total of 70 billion dollars to help each of them stave off a credit crisis.
Analysts said the central bank's Federal Open Market Committee, set to meet on Tuesday on interest rates, might be forced to cut rates in a further reassurance to markets. The Fed has kept its base rate at 2.0 percent since April.
Lehman shares, delisted from the New York Stock Exchange, plunged 94 percent to 21 cents.
American International Group, one of the world's biggest insurance companies, slid 60.8 percent to 4.76 dollars on fears it may too face a death spiral from a cash crunch and possible credit downgrade.
Merrill Lynch, Lehman's white-shoe rival on Wall Street, managed to get a lifeline over the weekend with a deal to sell itself for 50 billion dollars to Bank of America. Merrill shares rose 0.06 percent to 17.06 dollars but Bank of America fell 21 percent to 26.55.
Washington Mutual, a west coast bank facing its own squeeze, slid 26.7 percent to 2.00 dollars amid ongoing fears it may be take over by banking regulators.
Among other financial firms, Citigroup sank 15 percent to 15.24 dollars, Goldman Sachs shed 12 percent to 135.50 dollars and Morgan Stanley dropped 13.5 percent to 32.19.
Among the few bright spots in the market were airline shares, helped by a slide in oil prices well below 100 dollars a barrel. United Airlines parent UAL jumped 8.8 percent to 12.36 dollars and American Airlines holding AMR added 8.8 percent to 11.30 dollars.
A rush into Treasury bonds by shell-shocked investors pushed up prices. The yield on the 10-year Treasury bond tumbled to 3.483 percent from 3.730 percent on Friday and that on the 30-year bond eased to 4.152 percent against 4.326 percent. Bond yields and prices move in opposite directions. - AFP/de
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