Dow plunges as $2.5tn erased from equities

Dow Jones: 10,809.85 (-634.76) Nasdaq: 2,357.69 (-174.72) SP 500: 1,119.46 (-79.92):US STOCKS sank the most since December 2008, while Treasuries rallied and gold surged to a record, as Standard and Poor's reduction of the nation's credit rating fuelled concern the economic slowdown will worsen.

The Dow Jones Industrial Average plunged 634.76 points as approximately $2.5 trillion was erased from global equities.

The S&P 500 Index lost 6.7 per cent to 1,119.46, its lowest level since September, as all 500 stocks fell for the first time since Bloomberg began tracking the data in 1996. Equities extended losses after the ratings cut prompted S&P to also lower debt rankings on Fannie Mae, Freddie Mac and other lenders backed by the government and reduce the credit outlook on Warren Buffett’s Berkshire Hathaway to negative.

On the first trading day after the downgrade, investors poured money into haven assets such as Treasuries, gold and the Swiss franc, while benchmark equity indexes for Europe, Australia, China and smaller US companies extended losses to more than 20 per cent from recent peaks, the level some investors consider a bear market.

Spanish and Italian bonds were exceptions as yields on 10-year notes slid after the European Central Bank bought the debt to help stem the spread of the region’s government-debt crisis.

The SP 500’s three-day slide of 11 per cent is the worst since November 2008 when the market was still reeling from the bankruptcy of Lehman Brothers. The gauge has plunged about 17 per cent since July 22nd to mark the worst drop in the same length of time since March 2009, during the final days of the bear market that dragged the index to a 12-year low.

More than 30 stocks fell for each that rose on US exchanges in the broadest sell-off since Bloomberg began tracking the data in 2004.

Almost 18 billion shares changed hands on the nation’s bourses, the most since the market crash of May 6th, 2010.

Bank of America, Citigroup, Morgan Stanley, SLM and Genworth Financial lost more than 14 per cent to lead the declines. Goldman Sachs sank 6 per cent to $117.66. Berkshire Hathaway’s Class B shares fell 6.5 per cent to $66.65, the most since 2008.

– (Bloomberg)