New York - The Dow Jones industrial average plunged below 7 000 on Monday for the first time in more than 11 years as investors grow even more pessimistic about the health of banks, and in turn the economy.
A staggering $61.7bn in quarterly losses at insurer American International Group Inc. touched off fresh fears about the health of the nation's financial system.
The worries pushed the blue chips below 7 000 for the first time since October 28 1997 and then below 6 900 for the first time since May 1 1997. The credit crisis and recession have now slashed half the average's value since it hit a record high over 14 000 in October 2007.
Investors are fleeing financials after the government said it would give AIG another $30bn in loans, besides the $150bn it has already injected into the company. Investors are worried about European financial companies, too. HSBC PLC, Europe's largest bank by market value, reported a 70% drop in 2008 earnings and said it needs to raise $17.7bn and cut 6 100 jobs.
"As bad as things are, they can still get worse, and get a lot worse," said Bill Strazzullo, chief market strategist for Bell Curve Trading. Strazzullo said he believes there's a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5 000, respectively.
The "game-changer," he said, will be the housing market and whether it can stabilise.
Meanwhile, billionaire investor Warren Buffett wrote in his annual letter to investors Saturday he is sure "the economy will be in shambles throughout 2009 - and, for that matter, probably well beyond - but that conclusion does not tell us whether the stock market will rise or fall."
The Dow fell 299.64, or 4.24% on Monday, to 6 763.29. The Dow last closed below 7 000 on May 1, 1997 and hadn't finished at this level since April 25, 1997.
The Dow's descent has been swift. It took only 14 sessions for the average to go from above 8 000 to below 7 000. So far this year, the Dow is down 22.9%.
Broader stock indicators also slid. The Standard & Poor's 500 index fell 34.27, or 4.7%, to 700.82. The index briefly traded below the 700 mark in the final minutes of the session. S&P 500 index hadn't traded below 700 since October 29, 1996. It hasn't closed below that level since the previous day, October 28.
The Nasdaq composite index fell 54.99, or 4%, to 1 322.85.
- AP