Saturday, February 28, 2009

Bank Fear Sends S&P To Worst-Ever Start To A Year

NEW YORK: US stocks fell and the S&P 500 marked its worst-ever start to a year on Feb 27, after the government said it will take a large stake in Citigroup's common shares, fanning fears it will increase its role in other major banks, Reuters reported. The decline closed out a grim month on Wall Street, with the Dow industrials hitting the lowest level since May 1997 as the blue-chip index fell for a sixth straight month.

Healthcare and drug companies, such as Merck & Co and Johnson & Johnson Inc, fell for a second day on Feb 27 on worries that US President Barack Obama's budget proposal will strangle profits as the administration tries to rein in healthcare costs.

Data showing the US economy shrank at an annual rate of 6.2 percent last quarter also weighed on the market. Citigroup shares tumbled 39 percent after the government said it will convert up to US$25 billion in the bank's preferred shares to common stock in a move that could dilute existing shareholders' ownership by 74 percent. The S&P financial index sank 8.1 percent.

"There are continued beliefs that Citibank is not the last bank that the government will take a large stake in," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. "Some people believe that if the government takes a 30 to 40 percent stake, which they did in Citibank, that would be considered some form of nationalization," he said.

The Dow Jones industrial average dropped 119.15 points, or 1.66 percent, to 7,062.93. The Standard & Poor's 500 Index fell 17.74 points, or 2.36 percent, to 735.09. The Nasdaq Composite Index slipped 13.63 points, or 0.98 percent, to 1,377.84. The Feb 27 close marked the lowest level for the S&P 500 since December 1996. The S&P 500 is down 18.62 percent since the start of the year, its worst two-month start on record. - Reuters

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