Uncertain investors send stocks on dramatic rollercoaster ride

NEW YORK -- In another dramatic day on Wall Street, stocks continued to fluctuate in volatile trading as investors remained uncertain what to do in this bruising bear market.

Stocks seesawed Friday, with the Dow Jones industrials spinning from an early loss of nearly 700 points to a 100-point late-session advance while investors looked for bargains after eight straight days of massive losses. The Dow was still headed for its worst week ever, though, as investors worried about credit markets that remain near paralysis.

The hair-trigger mentality of the market was evident from the opening bell. The Dow plunged almost 700 points right at the open, mounted a full recovery that put the Dow in the black for a few minutes, before selling off again. The Dow staged another recovery in late trading and bounced in and out of positive territory in the last hour of trading.

In late trading, the Dow was down 45.56, or 0.5%, to 8,533.63. At its low point Friday, the Dow was down 696 at 7,882.51, just 60 points above its low in Wall Street's last bear market, 7,286.27, reached Oct. 9, 2002.

The Standard & Poor's 500 index fell 8.70, or 1.0%, to 901.22, while the Nasdaq composite index dropped 3.03, or 0.2%, 1,642.09.

The volatility added to the uncertainty as the Dow has dropped 28% in the past 10 trading sessions, eclipsing the nearly 22.6% drop it experienced during the one-day crash in 1987. The current two-week sell-off has been so severe and wiped out so much stockholder wealth, that some Wall Street strategists are starting to use the word "crash" to describe the carnage.

"It's safe to say that the 25%-decline over the last 10 days is indeed a crash," Paul Hickey of Bespoke Investment Group declared in a note to clients.

A total of more than $8.6 trillion in stock market wealth had been wiped out by midday Friday since the market's peak last October, according to the DJ Wilshire 5000 "wealth" measure.

Todd Clark, a trader at Nollenberger Capital Partners, says traders suffered "a little bit of paralysis and numbness" when stocks plunged at the opening of trading. While the Dow's massive reversal raised some hopes that the hoped-for selling climax might have occurred, marking a market bottom, Clark is hesitant to declare that the selling is over.

"It had the classic signals of a reversal," he says, "but nothing about this market has been classic. All bets are off. We've gotten to the point of absurdity on the downside."

Still, he stresses that this market has been too unpredictable to assume anything,

Gary Kaltbaum, president of Kaltbaum & Associates, says fear and panic are now "over the top." He stresses that the sense of gloom and panic "sets the stage" for some kind of rebound. But he is still waiting for "climactic selling action that washes away the last seller."

Central banks around the world were forced to cut interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors as panicked, with investors bailing out of stocks on fears there is no end in sight to the financial carnage.

President Bush said Friday the government's efforts to rescue the financial sector was powerful enough to succeed but that it would take some time to be fully implemented.

His remarks came as finance ministers and central bankers from the Group of Seven nations gathered Friday in Washington to discuss the economic meltdown. One of the potential remedies expected to be reviewed at the meeting is for governments to guarantee lending between banks.

Investors continue to shift money into safer investments, most of it going into the government bond market. The yield on the three-month Treasury bill plunged to 0.28% from 0.58% late Thursday. That suggests that demand for T-bills, regarded by investors as the safest assets around, remains high.

Longer-term Treasury yields moved higher as investors moved into shorter term issues. The yield on the benchmark 10-year note rose to 3.87% from 3.76% late Thursday.

The volatility in U.S. markets followed a global sell off as stocks plunged from Seoul to Singapore, and then across Europe, after an overnight sell-off in New York on Thursday.

European stocks sank, with Britain's FTSE-100 down 7.9%, German's DAX down 7.0%, and France's CAC-40 down 7.7%. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market — the Nikkei 225 fell 9.6%.

Trading on exchanges in Austria, Iceland, Romania and Ukraine was halted when losses mounted quickly. Russian regulators ordered Moscow exchanges, where trading has been suspended for two days, not to open as scheduled.

Driving the plunge: Concerns that a global financial crisis that has frozen lending between banks has now seeped across all sectors signaling a worldwide recession.

"We're not talking about fears of recession — recession is here," said Howard Wheeldon, senior strategist at BGC Partners, a London brokerage house. "The question's now how deep, how protracted it's going to be."

The trigger, Wheeldon said, was word Thursday that the credit rating of General Motors gm could be cut.

That led to a massive 7.3% plunge in the Dow Jones industrial average Thursday, with Asian and European investors quickly following suit as markets opened Friday.

"GM is a household name everywhere," Wheeldon said. "If GM is perceived to be in even worse trouble than it was, that's telling the markets this recession is going to be pretty awful."

Gloom from the markets here preceded a meeting by finance ministers and central bankers from the G-7 group of industrialized nations later today in Washington. They gather to try to address the global meltdown in the world's banking systems.

Many nations — including the United States, Britain and Russia — have jumped in in the last two weeks to bail out or prop up their major banks. Many nations haven't, however. And the efforts that have been taken haven't unfrozen lending between banks across the globe. Nor have they opened lending to industry and other businesses.

British Prime Minister Gordon Brown Friday called on other governments to follow Britain's lead and come to the rescue of their struggling banks. Britain this week offered banks a $848 billion bailout. That came on top of a $700 billion U.S. plan signed last week by Bush.

Writing in The Times of London, Brown called for "a global solution" to the financial crisis and said world leaders should gather to devise a plan to restructure financial markets."Because this is a global problem, it requires a global solution," he said.

Morgan Stanley on Friday cut its estimate for Japan's economic growth this year by half to 0.4% and predicted that the Japanese economy would contract by 1% in 2009.

Stocks are collapsing despite a coordinated effort by central banks around the world to cut interest rates this week and flood markets with liquidity. "People have been speculating for weeks about a coordinated rate cut," Moodys Chan said. "Finally it comes, but too late."

The good news, Chan says: The rate cuts show that central bankers are finally committed to jump-starting stalled economies, instead of tightening credit to fight inflation. But panicked investors are looking for bold movies from policymakers in Europe and the United States, where the crisis began with a meltdown in the U.S. housing market, she said.

"It all goes back to the U.S. and Europe," Chan said. "If they slow, the rest of Asia will suffer... More needs to be done to kick-start the recovery process. We expect more turbulence."

In Japan, Kenji Akasaka, 69, president of a printing company, said he had never seen it this bad in the 40 years he has traded stocks. He said he invests mainly in blue-chips including Toyota and Nintendo — both of which have lost about half their value over the last year.

"I pray before I go to bed that the Dow will recover," said Akasaka, 69, as he scanned a monitor displaying the latest market levels. "I get sleepless, thinking about losses."