US stocks lower as Paulson unveils change in bailout

An already disheartened Wall Street turned sharply lower Wednesday after Treasury Secretary Henry Paulson said the government won't buy
banks' soured mortgage assets after all, disappointing investors who hoped to see the bad debt wiped off companies' books. The Dow Jones industrials fell more than 270 points, and all the major indexes dropped more than 2 percent as the market retreated for a third straight session.

Paulson said the government's $700 billion financial rescue package will not purchase troubled assets from banks as originally planned. He said that plan would have taken too much time, and that the Treasury instead will rely on buying stakes in banks and encouraging them to resume more normal lending.

While the market had been pleased by the government's decision weeks ago to buy banks' stock, investors still hoped to see the financial industry relieved of the burden of the mortgage assets whose decline in value helped set off the nation's financial crisis.

Paulson also announced a new goal for the program to support financial markets which supply consumer credit in such areas as credit card debt, auto loans and student loans. He said "with a stronger capital base, our banks will be more confident" to support economic activity.

With the market also worried about sagging consumer spending, news from some of the nation's biggest retailers also sent stocks falling. Macy's Inc. said it lost $44 million in the third quarter as sales at the department store retailer fell more than 7 percent. Consumer electronics retailer Best Buy Co., meanwhile, slashed its fiscal 2009 guidance on fears that consumer spending will erode even further.

Investors are worried that a severe pullback in consumer spending — which drives more than two-thirds of the U.S. economy — will prolong a global economic downturn.

In late morning trading, the Dow shed 274.39, or 3.16 percent, to 8,419.57.

The broader Standard & Poor's 500 index dropped 29.49, or 3.28 percent, to 869.46, and the Nasdaq composite index stumbled 41.43, or 2.62 percent, to 1,539.47.

The Russell 2000 index of smaller companies fell 14.24, or 2.95 percent, to 468.05.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to a light 235.6 million shares.

Concerns about consumer spending contributed to the market's declines on Monday and Tuesday.

Government bond prices, which did not trade Tuesday because of Veterans Day, moved higher as investors looked for safer investments. The three-month Treasury bill's yield fell to 0.19 percent from 0.22 percent late Monday, and the yield on the benchmark 10-year Treasury note fell to 3.69 percent from 3.76 percent late Monday.

Lower yields indicate stronger demand.

Crude dropped below $57 a barrel Wednesday on the growing realization that global economic growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. Light, sweet crude fell $1.42 to $56.91 a barrel on the New York Mercantile Exchange.

In corporate news, the future of the country's top automakers remained a major concern on the Street. House Speaker Nancy Pelosi wants Congress to support a financial bailout for the troubled U.S. auto industry, which is suffering under the weight of poor sales, tight credit and a sputtering economy.

Source: EconomicTimes