Stocks Finish Lower on Economic Worries

Monday morning's rally that was sparked by an economic stimulus plan by China fizzled. General Motors shares skid

Stocks finished lower Monday as investors' ongoing worries about the economy and corporate profits weighed on the market. An early rally attempt fueled by a $586 billion economic stimulus package announced by China quickly faded.

In the U.S., Democrats are urging President George Bush to approve an economic stimulus plan. The U.S. government unveiled a plan to scrap its original $123 billion bailout of American International Group (AIG) and replace it with new $150 billion package. Congressional Democratic leaders also urged Bush to consider using the $700 billion TARP plan to aid distressed American automakers. On Friday, leaders of 20 nations will gather in Washington to talk about how to handle the economic crisis that's affecting the world.

On Monday, the Dow Jones industrial average fell 73.27 points, or 0.82%, to 8,870.54. The broader S&P 500 index lost 11.78 points, or 1.27%, to 919.21. The tech-heavy Nasdaq composite index was down 30.66 points, or 1.86%, to 1,616.74.

News from China, which unveiled a $586 billion economic stimulus program aimed at bolstering domestic demand and help avert a global recession, helped boost stocks around the globe. In Asia, Tokyo stocks surged 5.81%, Hong Kong rose 3.52%, and Shanghai soared 7.42%.

European stocks finished higher but off the best levels of the session Monday, with major indexes in London up 0.9%, Frankfurt up 1.8% and Paris stocks gaining about 1.1%.

Back on Wall Street, attention turned back to the struggling U.S. economy and stocks fell.

Bonds were higher as trading finished early today in preparation for tomorrow's Veterans' Day holiday. The 30-year Treasury bonds were up 1-08/32 to 105-05/32 for yield of 4.196% at 2:07 pm EST, the 10-year notes were up 12/32 to 102-02/32 for yield of 3.751% and the 2-year notes were up 04/32 to 100-15/32 for yield of 1.263%. S&P MarketScope says the overall market action was impressive considering many worried about China selling some of its $1 trillion worth of Treasuries to pay for its $586 billion economic stimulus plan.

Commodities markets were strong on hopes the China plan will revive economic activity and demand. December WTI crude oil futures were up $1.19 to $62.23. December gold futures were up $16.40 to $750.60 per ounce.

Among stocks in the news Monday, General Motors (GM) shares plummeted 23% to 3.36 after Deutsche Bank downgraded GM to sell from hold, with an price target put at $0.00. On Friday, GM reported steep losses for the third quarter, and said that it anticipates weakness through 2009 as the slowdown spreads around the globe while its liquidity is in jeopardy. GM said that it had been burning through cash at a pace of more than $2 billion a month and that it could run short of money by mid-2009 without federal help. The company said it had suspended merger talks with Chrysler to focus on its own problems.

Chrysler and Ford (F) have also been battered by the weak economy, tight credit markets and high oil prices, but General Motors seems to be the worst off. Congress recently approved $25 billion in loans for auto manufacturers, but executives say that is not enough to keep the industry afloat.

American International Group (AIG) shares rose 8% to 2.28 after the Federal Reserve and U.S. Treasury restructure the government's financial support to AIG. The Treasury will buy $40 billion of newly issued AIG preferred shares under TARP (allows Fed to reduce from $85 billion to $60 billion the total amount available under credit facility established by New York Fed on Sept. 16, 2008); interest rate on facility will be reduced to 3-month Libor plus 300 basis points from current rate of 3-month Libor plus 850 basis poins, and fee on undrawn funds will be reduced to 75 basis points from 850 basis points. Separately, AIG posted $9.05 third quarter loss, vs. EPS of $1.19. S&P kept a hold opinion on the stock.

Circuit City Stores (CC) files for Chapter 11 bankruptcy protection, saying it has $3.4 billion in assets and $2.32 billion in debt as of Aug. 31.

AT&T (T) and Centennial Communications (CYCL) announce that AT&T plans to acquire CYCL for $944 million in cash, or $8.50 per share.