U.S. stocks follow overseas markets lower
NEW YORK -- U.S. stocks dropped sharply Thursday after plunges in both Asian and European stock markets as investors fled the fallout from the troubled U.S. mortgage market.
Investors' confidence, already diminished by months of bad news about mortgages and credit, took a further drubbing after Countrywide Financial, the nation's largest mortgage lender said it was forced to draw on an $11.5 billion credit line to fund operations.
Housing construction also fell, coming in at a 10-year low in July.The Commerce Department reported that construction of new homes and apartments dropped 6.1% last month to a seasonally adjusted annual rate of 1.38 million units. That was down 20.9% from the pace of activity a year ago and represented the slowest pace since January 1997.
Wall Street seemed unfazed as the New York Federal Reserve — which carries out the central bank's market operation — announced an overnight repurchase agreement worth $12 billion. This was on top of a 14-day "repo" worth $5 billion announced before the market opened.
Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up. The Fed uses a repo to buy securities from dealers, who then deposit the money into commercial banks.
But, it has done little to offset fears about steeper losses for financial institutions squeezed by weeks of volatility that showed no signs of abating. Analysts contend many institutional investors want the Fed to be even more decisive.
"The concern out there is how bad are these problems with some of the financials, and everyone is looking for the Fed to aggressively cut rates to bail out the market," said Peter Dunay, an investment strategist with New York-based Leeb Capital Management. "The Fed is not eager to cut rates each time the market declines, and they're sending a message to the market that you might be on your own for a little bit."
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