By DPA,
New York : US stocks fell sharply Wednesday amid fears that more major bank failures could be around the corner, despite the government rescue of struggling insurance giant American International Group Inc (AIG).
Both the Dow Jones Industrial Average and the broader Standard & Poor’s 500 Index tumbled more than four percent, led by financial firms that have already borne the brunt of a year-long credit crisis.
Goldman Sachs Group Inc and Morgan Stanley, the only remaining independent US investment banks, suffered their worst ever drops amid concerns they might not be able to survive the credit crunch on their own. The New York Times reported that Wachovia Corp and other banks have expressed interest in acquiring Morgan Stanley.
Inter-bank lending appeared to have seized up despite the Federal Reserve’s best attempts to inject fresh liquidity into the system. More than $200 billion in reserves have been added since the beginning of the week to help fill banks’ massive debt obligations related to plunging mortgage-related assets.
Amid the stock and financial turmoil, the gold price posted its strongest one-day gain in nine years, jumping $70 , or nine percent, to $850.50 per fine ounce.
The US central bank late Tuesday agreed to make a two-year, 85- billion-dollar bridge loan to AIG and will take a controlling stake in the company, which had been threatened with insolvency if it could not raise the needed capital.
But the lifeline left some investors concerned over just how many more financial firms could be in a similarly dire position amid an ongoing credit crisis in the United States.
Washington Mutual, the largest US savings and loan bank, was among those that could be next in line.
The Dow plunged 449.36 points, or 4.06 percent, to 10,609.66. The broader Standard & Poor’s 500 Index was down 57.20 points, or 4.71 percent, to 1,156.39. The technology-heavy Nasdaq Composite Index fell 109.05 points, or 4.94 percent, to 2,098.85.
The S&P 500 equalled its percentage drop from Monday – its sharpest decline since the September 2001 terrorist attacks. The Dow plunged more than 500 points, or 4.4 percent, Monday.
Those losses were triggered by the bankruptcy filing of Lehman Brothers Holdings Inc, the largest in US history, while Bank of America Corp Sunday night acquired the struggling brokerage Merrill Lynch & Co.
“It’s ugly … about the worst I’ve seen it in 25 years,” Michael Mullaney of Fiduciary Trust Co told Bloomberg financial news agency.