Market plunges as credit fears rise

NEW YORK - Markets plunged again yesterday, and the Dow Jones industrial average plummeted more than 280 points after comments from a major investment bank exacerbated fears of a widening credit crunch.

The drop of more than 2 percent in major stock market indexes capped two volatile weeks on Wall Street and followed back-to-back late-day triple-digit gains in the Dow. This time, the catalyst for a sharp skid was Bear Stearns Cos. chief financial officer Sam Molinaro, who described turmoil in the credit market as the worst he had seen in 22 years.

Stocks started the day with a decline after the government said job growth was not as strong as expected last month and a trade group reported that the nation's service sector grew at a slower pace in July than expected. Then, credit concerns further weighed on investor sentiment. Standard & Poor's Ratings Services lowered its credit outlook on Bear Stearns to "negative" from "stable" because of the investment bank's exposure to the distressed mortgage and corporate-buyout markets.

Investors remain worried that problems in subprime mortgages - those made to borrowers with poor credit histories - will force lenders to make credit less available. When people and companies can't borrow money as easily, the economy tends to slow down.

The Dow fell 281.42, or 2.09 percent, to 13,181.91. As has been typical in recent sell-offs, much of the decline came late in the session; the Dow lost more than 100 points in the final 15 minutes yesterday. Despite the day's loss, the index was off only 0.63 percent for the week.

Broader stock indicators also fell sharply yesterday. The Standard & Poor's 500 index dropped 39.14, or 2.66 percent, to 1,433.06, and the Nasdaq composite index fell 64.73, or 2.51 percent, to 2,511.25. For the week, the S&P fell 1.77 percent, while the Nasdaq fell 1.99 percent.

Small-company stocks were hit hard again yesterday, partly because the global economy appears to be growing faster than that of the United States. Investors often contend that profits at larger companies are more likely to hold up amid a U.S. slowdown because much of their business is drawn from overseas. The Russell 2000 index of small-capitalization stocks fell 28.57, or 3.64 percent, to 755.42.

The unease over the mortgage market and tightening credit yesterday dragged down financial stocks, which have been hard hit in recent weeks.

Bear Stearns fell $7.28, or 6.3 percent, to $108.35. Lehman Brothers Holdings Inc. fell $4.67, or 7.7 percent, to $55.78. Merrill Lynch & Co. Inc. fell $2.50, or 3.5 percent, to $70.05.

Investors also fled lenders. American Home Mortgage Investment Corp. confirmed late Thursday that it had stopped taking mortgage applications and was laying off most of its 7,000 employees. American Home dropped 76 cents, or 52 percent, to 69 cents.

Countrywide Financial Corp. fell $1.77, or 6.6 percent, to $25. The nation's biggest mortgage lender said late Thursday that it had adequate access to cash and was not facing the liquidity crunch that is hitting dozens of other, smaller companies.

In economic news, the Labor Department said nonfarm payrolls rose 92,000 last month, less than the 132,000 jobs created in June and below the average forecast of about 135,000. Also, unemployment ticked up to 4.6 percent - a six-month high - from 4.5 percent in June. Still, overall unemployment remains low, analysts noted.

Also, the Institute for Supply Management said its non-manufacturing index, which measures service-sector activity, fell to 55.8 in July from 60.7 in June. Wall Street had expected a reading of 59, according to Thomson Financial/IFR.

Crude-oil futures settled down $1.38 at $75.42 a barrel on the New York Mercantile Exchange after the employment report suggested that the economy could slow and demand for oil could fall. Crude closed at a record $78.21 a barrel Tuesday, although it ended the week 2 percent lower.

In Asian trading, Japan's Nikkei stock average fell 0.03 percent, Hong Kong's Hang Seng index rose 0.4 percent, and China's Shanghai Composite Index rose 3.5 percent.

In European trading, Britain's FTSE 100 fell 1.21 percent, Germany's DAX index fell 1.31 percent, and France's CAC-40 fell 1.48 percent.