Stocks Drop to New Lows

A delay in a possible auto industry bailout vote and more gloomy data on manufacturing and the labor market sent the major indexes down another 5% to 6%

By Will Andrews and Karyn McCormack

Watch the Video…

Another day, another new low for the U.S. stock market. Steep losses Thursday pushed major indexes to fresh multi-year lows, with the big-cap benchmark S&P 500 reaching its lowest level since April, 1997. Investors had plenty of news to feed their fears about the health of the economy and the financial sector.

A midday rally attempt on Thursday fizzled and sellers came out in force once again in late trading after Democratic leaders in Congress said they would delay a vote on whether to bail out the Big Three U.S. automakers until December.

Investors essentially brushed aside the latest comments from Treasury Secretary Henry Paulson, who said the U.S. has avoided a financial collapse, and that the mistakes of the past should never happen again.

A fresh batch of bad news on the U.S. economy also came Thursday: Weekly first-time jobless claims hit a 16-year high, the Philadelphia Fed's manufacturing survey slumped in November, and U.S. leading economic indicators fell in October.

By the close of trading on Thursday, the Dow Jones industrial average plunged 444.99 points, or 5.28%, to 7,552.29. The broad S&P 500 index lost 54.14 points, or 6.71%, to 752.44 -- its lowest level since April 1997. The tech-heavy Nasdaq composite index fell 70.30 points, or 5.07%, to 1,316.12.

Financial stocks led the way lower. Citigroup (C) shares plunged 26% to 4.71 as wire reports indicated there are concerns about whether the bank has enough capital to withstand billions of dollars of additional loan losses. Thursday morning, Saudi Prince Alwaleed said he plans to boost his stake in Citi back to 5%.

Citigroup officials are lobbying lawmakers and the SEC to reinstate the expired ban on short selling of financial stocks, reports WSJ.com. (Short selling is a way to bet that shares will decline.) Scrambling to reverse this week's 40% plunge in its stock price, Citigroup also is urging officials to reinstate the "uptick rule," WSJ.com said. The uptick rule, which expired in July 2007, required investors to wait until a company's stock rose before they could sell it short.

Oil stocks also lost ground as crude oil futures slumped to below $50 per barrel in New York trading. Thursday's volatility in equities occurred before Friday's options expiry, notes S&P MarketScope.

Bond prices soared, sending Treasury yields to multi-decade lows as investors sought the safety of government debt. The 10-year note yield plunged to 3.11%. The dollar index gained. Gold futures were higher.

S&P technical analyst Chris Burba notes that the sizable U.S. equity losses Thursday were accompanied by a big jump in trading volume. "The heavy volume signals distribution by institutional investors. There isn't any technical evidence to indicate the stock market should stabilize, although the indexes don't have too much further to go before testing technical support at S&P 500 700 and Nasdaq 1253, he wrote in an S&P MarketScope posting.

"An asset allocation shift is taking place and no time is being wasted doing it," wrote Burba.

Stocks in Europe also finished solidly lower, with the FTSE 100 index in London down 3.26%, the CAC 40 index in Paris off 3.48%, and German's DAX index lower by 3.08%. Asian markets fell, with Tokyo stocks plunging 6.89%, Hong Kong down 4.04%, and Shanghai lower by 1.67%.