AP: Dow down more than 500 points, commodities dropping in price
NEW YORK (AP) — As the Dow Jones dropped more than 500 points today, commodities prices also tumbled broadly on growing expectations that the financial crisis pummeling world markets will dramatically reduce global demand for energy and raw materials.
Gold prices shot up as investors' faith in stock markets dimmed further, touching off a desperate dash for safe alternative investments.
The pullbacks in crude oil, corn, copper and other commodities came as investors accepted the reality that a $700 billion financial rescue plan approved Friday won't provide a quick solution to the worsening credit crisis. A significantly stronger dollar also weighed on commodities.
In the latest sign of the growing scope of the crisis, European governments over the weekend raced to shore up failing banks. Germany agreed to a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG and France's BNP Paribas said it would buy a 75 percent stake in Fortis's Belgium bank after a government rescue failed. Ireland, Greece, Iceland and Denmark also moved to guarantee bank deposits.
In the U.S., the Dow Jones industrial average gave up more than 500 points, dropping below 10,000 for the first time in four years.
Investors viewed the global market plunge as further proof that a painful and sustained economic downturn lay ahead despite the government's historic bailout package.
“Some people think it was too little, too late,” said Tom Pawlicki, commodities analyst with MF Global Research in Chicago. “The contagion of the crisis is moving on to other parts of the world and it's going to be negative for commodities demand.”
In agriculture trading, virtually all major grains traded lower.
Corn for December delivery fell 28 cents, or 6.17 percent, to $4.26 a bushel on the Chicago Board of Trade, while November soybeans declined 53.25 cents, or 5.37 percent to $9.3875 a bushel. December wheat fell 30.25 cents, or 4.72 percents, to $6.10 a bushel.
“Fundamentals mean little in this market as traders continue to focus almost exclusively on the overall economic situation,” Vic Lespinasse of Grainanalyst.com said in a note.
The dour outlook also weighed on oil prices. If the financial crisis continues to spread and economies in Europe and beyond fall into decline, consumers and businesses everywhere will be forced to reduce energy use.
Light, sweet crude for November delivery fell $4.25 to $89.63 a barrel on the New York Mercantile Exchange, after earlier dipping to $88.89, the lowest level since Feb. 8. On Friday, the November contract lost 9 cents to close at $93.88 a barrel.
In other Nymex trading, heating oil futures fell 13.7 cents to $2.525 a gallon, while gasoline prices dropped 12.33 cents to $2.105 a gallon.
The deepening anxiety boosted demand for gold. The precious metal often becomes more attractive during times of economic crisis because it's known for holding its value. Gold for December delivery jumped $44, or 3.96 percent, to $866.20 an ounce on the Nymex, after earlier rising as $879.
It's definitely a risk aversion play that's supporting gold,” said Pawlicki.
Other precious metals traded mixed.
December silver rose 4.5 cents to $11.37 an ounce on the Nymex, while December copper lost 20.35 cents to $2.4865 a pound.
Wall Street tumbled Monday, joining a selloff around the world, as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the U.S. and other governments.
The credit market remained under strain, and investors piled into government bonds. The markets have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash.
Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.
The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.
The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.
"These programs are going to be effective I believe," said Rob Lutts, chief investment officer at Cabot Money Management. "Shorter term we're in a very challenging environment that's going to take a while."
In the first hour of trading, the Dow Jones industrial average fell 336.43, or 3.26 percent, to 9,988.95, dropping below 10,000 for the first time since Oct. 29, 2004.
Broader indexes also tumbled. The Standard & Poor's 500 index shed 40.26, or 3.66 percent, to 1,058.97; and the Nasdaq composite index fell 77.35, or 3.97 percent, to 1,870.04. The Russell 2000 index of smaller companies dropped 22.30, or 3.60 percent, to 597.10.
In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's stock markets also declined, with the FTSE-100 down 3.24 percent, Germany's DAX down 5.28 percent, and France's CAC-40 down 5.60 percent.
The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.38 percent from 0.50 percent late Friday. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.
Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.52 percent from 3.60 percent late Friday.