The U.K. economy grew at the weakest annual pace since 1992 in the second quarter as the financial crisis curbed investment, construction and industrial production.
Gross domestic product rose 1.5 percent from a year earlier, the Office for National Statistics said in London today. That exceeded the previous estimate of 1.4 percent, which was the median forecast of 29 economists in a Bloomberg News survey. On the quarter, the economy didn't expand, as initially measured.
Prime Minister Gordon Brown's government seized Bradford & Bingley Plc and helped rescue HBOS Plc this month after the crisis undermined both mortgage lenders and threatened to worsen the economic downturn. The Bank of England has still refrained from cutting interest rates to support growth after inflation accelerated to the fastest pace in at least a decade.
“It's not a very good set of figures, the economy is heading toward a recession,'' said Howard Archer, chief European economist at Global Insight Inc. in London. “We were looking for a rate cut in November, but increasingly we're leaning to next week.''
The Bank of England kept its benchmark interest rate at 5 percent for a fifth month on Sept. 4. It lowered the rate three times until April.
The Bradford & Bingley action yesterday prompted the pound's biggest one-day drop against the dollar in 16 years. The currency traded at $1.8067 today in London.
Brown's Pledge
Brown said yesterday the government will work “night and day'' to preserve the stability of the banking system. His handling of the crisis helped narrow the Conservatives' lead to 9 points from 15 points a month earlier, according to an ICM Ltd cash advance loan. poll finished Sept. 25.
The statistics office said today that services grew 0.2 percent from the first quarter, the weakest pace since 1995. Industrial production dropped 0.7 percent, revised up from the 0.8 percent estimated previously and construction fell 0.5 percent, compared with the 1.1 percent decline initially measured.
Fixed investment fell 2.8 percent, compared with a previous estimate of 5.3 percent. Business spending fell 1 percent on the quarter. Government spending rose 0.5 percent, instead of 0.4 percent in the initial measure.
The current account deficit widened to 11 billion pounds ($19.8 billion), the largest in three quarters, the statistics office said in a separate report today.
Rate Forecasts
Market turmoil has bolstered the case for the central bank to resume rate cuts as record oil and food prices stoked inflation, which reached 4.7 percent in August. Economists Michael Saunders at Citigroup Inc. and Alan Clarke at BNP Paribas on Sept. 26 pulled forward predictions for the next rate reduction to as soon as October.
David Kern, economic adviser at the British Chambers of Commerce, yesterday called for policy makers to consider a half- point reduction in the benchmark interest rate, saying “threats to the economy are mounting and we need urgent action.''
Eight of the nine-member Monetary Policy Committee voted to leave the key interest rate unchanged this month as they weighed the growth outlook against faster inflation. The bank makes its next interest-rate decision on Oct. 9.
The economy’s spring rebound turned out to be slightly less energetic than the government previously thought. And, the road ahead is likely to be rocky as the country gets pounded by the worst financial crisis in decades.
The Commerce Department reported Friday that gross domestic product, or GDP, increased at a 2.8% annual rate in the April-June period. That wasn’t as strong as the 3.3% growth estimate made a month ago.
But it did mark a pick up after two terrible quarters. The economy barely grew in the first quarter - advancing at a feeble 0.9% pace. And, in the final quarter of last year, the economy actually shrank.
Nonetheless, the lower reading for second-quarter GDP surprised economists; they were expecting the government would stick with the 3.3% growth estimate.
The main reasons behind the downgrade: consumer spending and U.S. exports didn’t grow as much during the spring as previously thought. Yet export growth was still very brisk, a key factor keeping the economy afloat. And, consumers were helped out by the government’s tax rebates.
GDP measures the value of all goods and services produced within the United States and is the best barometer of the country’s economic health.
Since the spring, the economy has lost traction.
In the past week alone, the clogging of the nation’s credit arteries had become so bad that the Bush administration proposed a $700 billion financial bailout to Congress in a desperate bid to stem the fallout.
Despite marathon negotiations between congressional leaders and the administration to hash out a deal, the package is in limbo. Angry Republicans are balking even in the face of a prime-time plea by President Bush to move swiftly.
GOP presidential nominee Sen. John McCain and his Democratic rival, Sen. Barack Obama, were summoned to the White House and have scrambled to assure the public they are on top of the nation’s economic and financial problems.
Federal Reserve Chairman Ben Bernanke earlier this week told Congress that failing to enact the bailout could drive unemployment and foreclosures even higher and push the economy into a recession.
The economy already is faltering. It will lose momentum during the second half of this year, Bernanke told lawmakers faxless cash advance. Consumers have clamped down and slowdowns overseas are sapping demand for U.S. exports, he said.
Businesses in turn are hunkering down and cutting back on hiring. The nation’s unemployment rate jumped to 6.1% in August, a five-year high. So far this year, a staggering 605,000 jobs have vanished. The economy needs to generate more than 100,000 new jobs a month for employment to remain stable.
A growing number of analysts predict the economy will shrink in the final quarter of this year and in the first quarter of 2009 as the mounting damage of the housing, credit and financial debacles take their toll on the country.
In the spring, consumers - armed with tax rebates - boosted their spending at a 1.2% pace. That was down from the 1.7% growth rate previously reported for the second quarter, but was an improvement from the 0.9% growth rate in the first three months of the year.
Exports grew at a 12.3% pace in the spring. That was down from a previous estimate of a 13.2% growth rate, but marked a big pickup from the first quarter’s 5.1% pace.
One of the country’s biggest problems - the housing collapse - was evident in the GDP report.
Builders cut back at an annual rate of 13.3% in the second quarter. Still, that was a better showing than early this year and late last year.
An inflation gauge tied to the GDP report showed prices - excluding food and energy - rose at a 2.2% pace in the second quarter.
Although that was down from a 2.3% growth rate in the first quarter, it still remained outside the Federal Reserve’s comfort zone.
The Fed in June halted its most aggressive rate-cutting campaign in decades to shore up the economy out of concern that additional rate reductions would worsen already-high inflation. The Fed last week agreed to again hold its key rate steady at 2%, despite all the turmoil in financial markets and the broader economy. Some analysts believe the problems may force the Fed to do an about face later this year and cut rates again.
Stocks inched higher at the open Tuesday, following the previous day’s steep selloff, as a Senate hearing on the proposed $700 billion financial services bailout plan got underway.
The Dow Jones industrial average (INDU), the Standard & Poor’s 500 (SPX) index and the Nasdaq composite (COMP) all gained in the early going.
On Monday, all three major indexes slumped, with the Dow industrials sinking 373 points on worries about what details may emerge from the government’s plan to restore financial stability. It was the fourth day in a row that the Dow posted a move of 350 points in either direction, reflecting the extreme volatility present in markets right now.
In testimony prepared for a Senate Banking Committee hearing, both Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said that immediate action is needed to save the economy.
Paulson said the bailout is necessary "in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ well-being, the viability of businesses both small and large, and the very health of our economy."
"Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy," Bernanke said.
The Congressional debate continues over the details of the plan to save Wall Street. The Democrats are seeking government ownership of certain assets, in exchange for putting up the money payday loan.
Art Hogan, chief market strategist for Jefferies, said that investors are still nervous about deteriorating earnings in the hard-hit finance sector, despite the call for a bailout.
Hogan said slow earnings growth in the finance sector is "going to give us ongoing pressure even if we get expedited approval of the bailout. I think that’s crept into investors’ psyche."
Oil: Oil prices recorded their biggest one-day jump in history on Monday, when the October contract surged $25 a barrel during late-day trading before closing up $16.37 to $120.92 a barrel. The late surge was partly due to the expiration of the October contract, which prompted traders to rush to fill obligations.
Early Tuesday, the November contract - now the front month - was trading down 87 cents to $108.50 a barrel.
Company news: Lennar (LEN, Fortune 500), a home-building company that provides financial services, announced third-quarter results before the opening bell. The company’s loss narrowed to 56 cents a share while revenue plummeted 53% to $1.1 billion. Both results came in slightly better than expected, but the results still indicate weakness in the housing sector.
Other markets: European markets were down, but the Nikkei closed higher. The dollar fell versus the euro and the Japanese yen.
Central banks in Frankfurt, London and Zurich kept up their dollar auctions for a third day as part of coordinated action with the Federal Reserve to provide liquidity to financial markets.
The European Central Bank, the Bank of England and the Swiss National Bank allotted $76.2 billion out of $90 billion on offer in emergency overnight funds. The U.K. central bank distributed less than the $40 billion on offer, while the ECB and SNB said banks bid for more money than they auctioned. Today's funds replace $70.8 billion in overnight loans maturing today.
The central banks sought to soothe money markets after last week's collapse of Lehman Brothers Holdings Inc. and the U.S. government's takeover of American International Group Inc. threatened to derail financial markets. That led to the unveiling of the Bush administration's $700 billion dollar rescue plan to restore confidence.
“It would be wrong to say dollar markets are functioning normally but these are difficult times and central banks have injected a huge amount of liquidity,'' said Philip Shaw, chief economist at Investec Securities. “I think it is having an effect of some sort. Things do look considerably calmer than last week.''
The overnight rate for lending between banks in dollars fell to 2.97 percent today from 3.25 percent on Sept payday loans. 19, the British Bankers' Association reported in London.
Japan, U.A.E.
The United Arab Emirates central bank set up a 50 billion- dirham ($14 billion) fund for banks operating in the country to help ease liquidity constraints today. The Bank of Japan said it will auction dollars on Sept. 24, lending $30 billion for one month and plans to conduct four other dollar operations this year.
The Bank of England allowed bids of 20 percent of the total on offer today, twice the size permitted in previous auctions. The bank also disclosed that it received 5 billion pounds ($9.2 billion) in overnight funds on Sept. 19, the first use of its deposit facility in more than a year and the most since it revamped its money market operations in May 2006.
The ECB said the average rate for the overnight dollar loans, which were set up with a swap line with the Fed last week, was 3.25 percent. The average rate in the U.K. was 2.06 percent, and the minimum bid accepted was at 0.01 percent. The SNB loaned dollars at an average rate of 2.72 percent.
The Federal Reserve's Open Market Committee kept its target overnight lending rate at 2 percent on Sept. 16.
Alitalia’s special administrator will make a last-ditch attempt to sell Italy’s loss-making national airline on Monday by public tender before calling in the liquidators after a failed rescue bid.
Alitalia faces liquidation in a matter of days after a plan to rescue the carrier by Italian investors collapsed last week when unions refused to accept its conditions. Flights continued as normal on the weekend but could be grounded in a week’s time.
With Prime Minister Silvio Berlusconi, who made an election promise to rescue the airline, acknowledging no foreign airline was about to step in and that Alitalia could be doomed to bankruptcy, the auction appears a mere formality.
“We will proceed with a public request (for offers),” the special administrator, Augusto Fantozzi, told Il Messagero daily in comments published on Sunday. “It will formalize what I have been doing — without any results so far despite all my efforts — regarding the main assets.”
Suffering from the high fuel prices and an economic downturn that have hit the airline sector globally, Alitalia has been on the brink of collapse for years as political interference and labor unrest bled it of cash and caused it to pile up debt.
NO OFFERS
Berlusconi opposed the previous centre-left government’s bid to sell the state’s 49.9 percent stake, including an offer from Air France-KLM, saying it must stay in Italian hands.
The media mogul returned to power in May promising to rescue it and used his influence to rally 16 business groups in the CAI consortium payday loan. But CAI withdrew its offer last week after pilots and cabin crew refused to accept job cuts and new contracts.
China and Thailand's central bankers said there has been limited fallout for their banks from the U.S. credit crisis that sent Lehman Brothers Holdings Inc. into bankruptcy and wiped $19 trillion from world stocks in the past year.
“There is not much impact on Asia this time because the problems haven't taken place here,'' Bank of Thailand Governor Tarisa Watanagase told reporters today in Bangkok, where she is hosting a meeting of central bankers. “So far the impact on Thai banks is very little.''
The region's policy makers this week played down concerns that their countries will be subjected to a meltdown similar to that of 1997, saying contagion from the U.S. turmoil is unlikely to infect their financial systems. Asia's key stock index rebounded yesterday from a three-year low as central banks pumped cash into money markets and the U.S. worked on plans to shore up banks and insurers.
“The direct impact of the subprime crisis is currently limited,'' China central bank Deputy Governor Su Ning said at a financial conference today in Shanghai. Still, “China will be highly alert to the negative effects of unstable global financial markets and decreasing overseas demand.''
The MSCI Asia Pacific index rose 5.5 percent yesterday and Asian currencies, including the South Korean won, Philippine peso and Indonesia rupiah, advanced. The U.S. government announced plans to purge banks of bad assets and crack down on speculators who drove down shares of financial companies.
`More Confidence'
The U.S. plan “should help encourage new investors to have more confidence to inject liquidity into U.S. financial institutions,'' Paisarn Lertkowit, a foreign-exchange dealer at Bangkok Bank Pcl, said today in a telephone interview.
“Capital outflows from Asia may continue for a while,'' he said. “When it becomes clear that the U.S. is gradually recovering, funds will start to flow back.''
Central banks in Japan and Australia pumped $113 billion into money markets this week, joining European and U.S. counterparts in supporting the financial system and attempting to revive confidence. Earlier in the week, China cut interest rates for the first time in six years and allowed most banks to set aside less reserves.
“We central bankers need to be watchful and decisive,'' Tarisa said today. “We have a swap arrangement between us and standby credit to inject liquidity if problems arise.''
Central banks around the region have boosted cooperation to strengthen their financial markets and set up emergency measures to bail out their systems in case of crisis payday loan. Japan, South Korea, China and Asean countries are discussing the creation of a pool of $80 billion in Asian foreign-exchange reserves to be tapped in case the nations need to protect currencies.
Regional Safeguards
The reserve pool is an expansion of a current arrangement that only allows for bilateral currency swaps. It is designed to ensure central banks have enough to shield their currencies from speculative attacks like those that depleted the reserves of some countries during the Asian financial crisis a decade ago.
The region has since accumulated more than $3.3 trillion of reserves, about half of the global total.
Thailand, which triggered the Asian financial crisis with the devaluation of its baht in July 1997, has no shortage of capital and the nation's lenders are “strong and resilient,'' Tarisa said this week.
AIG Retail Bank Pcl, a Thai unit of American International Group Inc., has adequate assets and isn't affected by the problems that led to the U.S. government's $85 billion takeover of its parent, President Charly Madan said on Sept. 18.
Chinese Banks
Chinese banks may sustain limited negative effects from the plummeting value of related investments, said Ken Peng, an economist at Citigroup Inc. in Shanghai.
Lehman filed the biggest bankruptcy in history on Sept. 15, listing $613 billion of debt. Chinese banks including Industrial & Commercial Bank of China and Bank of Communications have $454 million at risk as a result, according to data compiled by Bloomberg.
“The direct linkages between Chinese financial institutions and American ones are fairly limited,'' Peng said today in a telephone interview. “The direct holdings are very small compared to the asset base of Chinese firms, so the direct effect is not that significant.''
China will strike a balance between controlling inflation and supporting economic growth, the central bank's Su said today.
“We should continue to be alert to inflation,'' he said. “We are confident about maintaining the stability of the financial market.''
While China's growth is the fastest of the world's 20 biggest economies, policy makers are concerned that weakening global growth has increased the risk of a slump. The People's Bank of China cut the one-year lending rate to 7.20 percent from 7.47 percent on Sept. 15.
The U.S. government curbed short-selling and guaranteed money-market mutual funds on Friday as it worked on a sweeping bailout to mop up hundreds of billions of dollars in toxic mortgage debt, sending global stock markets soaring.
The moves capped a week in which financial markets faced their most serious confluence of crises since the Great Depression in the 1930s and threatened national economies and the worldwide banking system.
“It’s like having a heart attack, and you go and get your chest cracked open and get it fixed, but the next morning you’re still hurting,” said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
“This has been a beast of biblical proportions. Nobody has seen anything like it.”
Lawmakers promised fast action on the toxic-debt plan, which two banking industry sources put in the $500 billion to $800 billion range. A Treasury spokeswoman declined comment.
As the U.S fast cash now. government brought out the big guns to tackle the mounting financial crisis, investment bank Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) bought itself some time to come up with a plan for its future and continued talking to Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) and other banks about a merger.
On Saturday, a U.S. bankruptcy judge approved British bank Barclays Plc’s (BARC.L: Quote, Profile, Research, Stock Buzz) deal to purchase the core U.S. business of Lehman Brothers Holdings Inc LEHMQ.PK.
But much of the markets’ focus was on Washington, as officials from President George W Bush’s administration, Congress and the Federal Reserve worked to craft a number of plans to restore confidence in shaken stock markets.
Governments can now breathe a sigh of relief and go back to planning redevelopment projects using tax incremental and other public financing as the Florida Supreme Court changed its mind on forcing municipalities to take such decisions to a referendum first.
The court decided in a 3-2 decision Thursday to reverse its September 2007 decision in Strand v. Escambia County that required municipalities to first get voter approval before committing ad valorem money toward bonds. Those municipalities typically used such bonds to finance redevelopment projects secured through future tax revenue.
In Thursday's ruling, the Supreme Court said referendums were not needed for such projects, which could help get some local projects moving swiftly again.
Justices R. Fred Lewis, who was appointed to the bench in 1998 by Gov. Lawton Chiles, and Peggy A. Quince were part of the dissenting minority. Justice Kenneth Bell, who announced last May he was resigning from the bench after five years of service, recused himself from the decision.
“The majority’s avoidance of this clear command perpetuates and expands a distortion of our fundamental organic law, leads us far beyond our prior precedent and denies the voters of this state their constitutional right to determine whether their local governments should issue long-term debt that is ‘payable from ad valorem taxation,’” Lewis wrote in the decision no fax payday loans. “The local government shell game, which is played to avoid the Florida voter, should not be sanctioned by this tribunal. Unfortunately, we have done so today by improperly expanding this game to the very capital projects addressed” by provisions in the state constitution.
The original court case was filed by Dr. Gregory L. Strand in 2006 against the Escambia County government after it authorized the issuance of up to $135 million in bonds for infrastructure improvements, including a four-lane road-widening project.
The case eventually landed at the Supreme Court which said that a referendum could be required if money generated by tax increment ,financing districts was being used for long-term projects of more than $1 million.
The struggling economy should hurt the holiday shopping season according to Deloitte & Touche. The New York company forecasted the 2008 shopping season will only see a 2.5% to 3% increase this year.
Last year Deloitte predicted a 3.4% increase in holiday retail sales, while sales actually increased 3%. If the consultant firm’s predictions are accurate, this year’s sales could see the smallest increase since 1991, when holiday sales, which are measured from November to January, increased by just 2%.
Higher energy and food prices will be partly to blame, according to Carl Steidtmann, chief economist with Deloitte Research since that means consumers will have less money to spend paydayloan. Another factor is the mortgage crunch that’s limiting the ability of people to refinance and take cash out of their homes in order to shop for the holidays.
"In addition … rising unemployment claims and a volatile stock market are negatively affecting consumers’ perceptions of the economy, their wealth, and their ability to spend," Steidtmann said in a press release.
"In all, these factors will likely lead to a challenging holiday season."
Stocks tanked Monday, amid the largest financial crisis in years after Lehman Brothers filed for the biggest bankruptcy in history, Bank of America said it would buy Merrill Lynch and AIG slumped on fears that it can’t raise cash.
Treasury prices rallied as investors sought the comparative safety of government debt, sending the corresponding yields lower. Oil prices tumbled, falling well below $100 a barrel on slowing global economic growth. The dollar rallied versus the euro and gold prices spiked.
The Dow Jones industrial average (INDU) lost 504 points, or 4.4%. It was the biggest one-day decline for the Dow on a point basis since Sept. 17, 2001, when the market reopened for trading after having been closed in the aftermath of 9/11 terrorist attacks. On a percentage basis, it was the biggest decline since July 19, 2002.
The Standard & Poor’s 500 (SPX) index lost 4.7%, its worst day since Sept. 17, 2001, when it plunged 4.9%. The S&P 500 also closed at its lowest point since Oct. 27, 2005.
The Nasdaq composite (COMP) lost 3.6%, its worst single-session percentage decline since March 24, 2003. It left the tech-fueled average at its lowest point since March 17 of this year.
"It was an ugly day," said James King, president and chief investment officer at National Penn Investors Trust Company. "Lehman’s failure to find a suitor and Merrill deciding to cash in their chips before a similar fate could befall them really stoked the fears of the public."
AIG exacerbated those fears in the afternoon. And all the bad news isn’t out there yet, King said. "Investor confidence is at the lowest point we’ve seen in a while."
He said that after the government bailout of Fannie Mae and Freddie Mac last week and all the other financial market bad news, this was just too much for investors.
But it doesn’t mean that the stock market is likely to see these kind of massive selloffs on a regular basis, King said. Nasdaq and S&P futures pointed to a higher open Tuesday, when fair value is taken into account.
After the close of trade, S&P said it is cutting its debt rating on mortgage lender Washington Mutual (WM, Fortune 500) to junk status, reflecting the ongoing credit market meltdown and WaMu’s exposure to the housing market. WaMu shares fell almost 27% during the session and lost another 11% in extended-hours trading.
Also after the close, Hewlett-Packard (HPQ, Fortune 500) said it will cut 24,600 jobs, or 7.5% of the combined workforce of HP and the recently-purchased EDS. Shares were barely changed in extended-hours trading.
Stock market meltdown: Global markets tumbled as investors reeled after Lehman Brothers filed for bankruptcy, Merrill Lynch was forced to sell itself to Bank of America and investors awaited AIG’s restructuring announcement.
"You have to throw out the history books because there’s really nothing to compare this to," said Jim Dunigan, chief investment officer at PNC Advisors.
"Any speculation as to what inning we’re in becomes difficult because each step of the way seems to bring another drop," Dunigan said.
Art Hogan, chief market strategist for Jefferies & Co., said the magnitude of the financial industry fallout is unprecedented, and could only be compared to the Great Depression of the 1930s or the railroad bankruptcies of the 1800s.
"We’ve never witnessed this before," said Hogan. "There’s no road map for this."
Dow-component insurer AIG and mortgage lender Washington Mutual are the latest companies to spark investor fear.
AIG has been scrambling to raise enough cash to fend off ratings agency downgrades and stay afloat.
N.Y. Gov. David Paterson said in the afternoon that AIG will be allowed to use $20 billion in assets through its subsidiaries to stay afloat, basically providing itself with a bridge loan. AIG has also reportedly asked the Federal Reserve for a roughly $40 billion bridge loan over the weekend.
In addition, the federal government has asked Goldman Sachs and JP Morgan to lead a $70 billion to $75 billion lending pool for the company, the Wall Street Journal reported. (Full story)
Shares of AIG (AIG, Fortune 500) slumped 60.8%.
The developments of the day cemented for investors that the credit crisis is far from over, six months after the near-collapse and government rescue of Bear Stearns.
"The landscape has changed and a lot of the major players who were are no more, so of course people are panicked," said Stephen Leeb, president at Leeb Capital Management cash advance.
"But it’s not the end of capitalism," he said. "This may usher in something worse than what we’ve seen in terms of the economy, but the companies left standing at the end of this will be OK."
Merrill Lynch’s buyout was perhaps providing some reassurance to investors, said Dunigan, in that it shows there is still value in the market.
Losses were also tempered by the Federal Reserve’s decisions to loosen up its lending restrictions. The central bank could end up cutting the fed funds rate, its key overnight bank lending rate, when it meets Tuesday, analysts said. The fed funds rate currently stands at 2.0%.
Also helping Tuesday: news that a group of 10 banks including Morgan Stanley, Goldman Sachs and Barclays had given up to $7 billion each to create a $70 billion lending pool to help smaller institutions.
Lehman bankruptcy: Lehman Brothers (LEH, Fortune 500) announced it was filing for bankruptcy, after weekend talks aimed at saving the 158-year old firm failed.
The filing came shortly after midnight Monday, after Bank of America and Barclays pulled out of negotiations to acquire Lehman, which has lost $60 billion in bad real estate bets and the credit market’s collapse.
Unlike with Bear Stearns back in March, the government was reportedly not willing to help finance a takeover, bailout or restructuring of Lehman Brothers. This reportedly contributed to the reluctance of other firms to strike a deal with the troubled company. (Full story)
Speaking in the afternoon, Treasury Secretary Henry Paulson said that he hasn’t ruled out additional government bailouts for the future. He also said that the banking system is sound. (Full story).
Lehman shares plunged 94%. (Full story)
Merrill Lynch buyout: After pulling out of the Lehman negotiations, Bank of America (BAC, Fortune 500) announced that it will buy Merrill Lynch (MER, Fortune 500) for $50 billion in stock. The price values the company at more than $29 a share, a more than 70% premium from Merrill’s closing price on Friday of $17.05.
The company has posted losses of more than $17 billion over the last four quarters and saw its stock plunge 27% last week.
Shares had rallied more than 15% during the session Monday before ending little changed. Bank of America tumbled 21%. A variety of other financial shares plunged, including Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).
Market breadth was negative, with losers beating winners by over 18 to 1 on volume of 1.8 billion shares. On the Nasdaq, decliners topped advancers by over six to one on volume of 2.75 billion shares.
10-bank emergency fund: In a bid to calm the markets, the Federal Reserve announced plans Sunday to loosen its lending restrictions to the banking industry. A consortium of 10 leading domestic and foreign banks, including Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), Barclays (BCS) and Morgan Stanley (MS, Fortune 500), agreed to create a $70 billion fund to lend to troubled financial firms.
The Federal Reserve, meeting Tuesday, could cut the fed funds rate, a key short-term interest rate, from the current level of 2%, analysts said.
Oil: Oil prices plunged as investors continued to bet on a global economic slowdown. Additionally, early reports showed Hurricane Ike didn’t do as much damage to oil rigs and refineries in the Texas Gulf region as expected.
Oil prices were down $5.47 a barrel to settle at $95.71, the lowest point since Feb. 15. Oil dipped below $100 a barrel on Friday for the first time in five months.
Other markets: In global trade, European and Asian stocks ended lower. Many major Asian markets, including Tokyo and Hong Kong, were closed for holidays.
Treasury prices soared as investors poured money into the relatively safe-haven. The rally sent the benchmark 10-year note tumbling to 3.39% from 3.72% late Friday.
In currency trading, the dollar slipped versus the euro and gained against the yen.
COMEX gold for December delivery gained $22.50 to $787 an ounce.
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