Stocks head for sharp decline on recession fears

[October 24, 2008]  NEW YORK (AP) -- Wall Street headed for another precipitous drop Friday as fears of a punishing global recession stirred panic among investors and sent world financial markets into a tailspin. The Dow Jones industrial average futures were down 550 points, the maximum allowed price change.

The increasingly grim outlook convinced investors that the world economy is headed for a long and severe downturn despite a raft of government rescue efforts aimed at pulling the financial system from the brink. Fearing more carnage in equity markets, big hedge funds and other institutional investors have been pulling out their money in a bid to reduce risk and raise cash.

Adding to the anxiety has been a barrage of worrisome corporate earnings and pessimistic fourth-quarter outlooks -indicating that the tremors caused by the global credit crisis may have not even begun to be felt.

News from overseas added to investors' anguish. In Japan, shares of Sony sank more than 14 percent after it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading after it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.

Ahead of the market's open, Dow Jones industrial average futures fell the maximum allowed limit of 550, or 6.27 percent, to 8,224. That triggered circuit breakers that automatically freeze selling.

On Thursday, the Dow rose 172 points as investors went looking for bargains after two days of selling. Analysts have predicted that trading will remain volatile for the foreseeable future while investors test whether or not the market has hit a bottom.

The Standard & Poor's 500 index futures was down 60.00, or 6.56, to 855.20, and the Nasdaq 100 index futures was down 77.75, or 6.20 percent, to 1,175.75.

Financial markets overseas were also down sharply.

Japan's Nikkei stock average fell 9.60 percent. Britain's FTSE 100 was down 5.95 percent, Germany's DAX index was down 9.38 percent, and France's CAC-40 was down 7.35 percent.

Credit markets remained tight but still much improved from where they were last week. The three-month bill, regarded as the safest assets around, yielded 0.95 percent, up slightly from 0.94 percent late Thursday. Last week the yield was at 0.20 percent, indicating investors were willing to trade the slimmest of returns for a safe place to keep their money.

The U.S. dollar, meanwhile, plunged below 93 yen, a 13-year low, as traders reacted to dismal U.S. jobs data that spurred speculation the Federal Reserve might cut interest rates. Meanwhile, gold prices plunged.

Light, sweet crude was down $3.47 to $64.37 premarket electronic trading on the New York Mercantile Exchange. The sell-off came despite OPEC's announcement that it will cut production by 1.5 million barrels a day in a bid to shore up sagging prices.

[Associated Press; By STEVENSON JACOBS]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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