Stocks Recover, but Finish Lower

Buyers emerged in the last half hour of trading Friday on hopes that world leaders would agree to resolutions to stop the panic

by Karyn McCormack and Will Andrews

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U.S. stocks clawed their way back from another day of heavy losses Friday as the global financial panic continued to take its toll. In the last half hour of trading, investors were snapping up bargains, while others were hopeful that world leaders that are meeting this weekend would devise ways to alleviate the pain in the markets.

However, the extreme selling mood of the last week was hard to overcome and the Dow Jones Industrial average and S&P 500 index finished lower for the eighth session in a row.

Friday's trading day began with a horrifying drop in the Dow of over 700 points to a low of 7,882.51 amid a burgeoning crisis in the world financial system. Markets in Europe and Asia suffered deep losses, with Britain's benchmark index hitting a five-year low and German stocks plunging 12% at one point.

By the market close Friday, the blue-chip Dow Jones industrial average fell 128.00 points, or 1.49%, to 8,451.19. The broader S&P 500 index shed 10.70 points, or 1.18%, to 899.22. The tech-heavy Nasdaq composite index managed to finish higher by 4.39 points, or 0.27%, to 1,649.51.

"We’re really in a calamity right now, and we have to pull out all the stops to get this things resolved," says Gary Wolfer, chief economist with Univest Wealth Management & Trust. He is hoping for "some kind of concerted action" by world central banks and large governments over the weekend.

The VIX equity volatility index, the market's favored "fear gauge", spiked to a high of 76.94 Friday afternoon, before settling at 69.95.

The wild session follows Thursday's devastating rout in U.S. equities amid an escalation in panic-driven selling. A 679-point loss (-7.3%) in the Dow industrials sent that benchmark crashing below the 9,000 level on Thursday, to finish at 8,579.19, its the lowest level in five years.

Friday's declines bring the Dow's loss for 2008 to 36.3% -- worse than 1937's decline of 32.8%. The S&P 500 is now down 38.8% for 2008 -- also the worst drop since 1937. And the Nasdaq has lost nearly 37.8% this year. The markets still have a ways to go to beat the worst year of the Great Depression, 1931, when the Dow fell 52.7% and the S&P 500 plunged 47.1%.

The S&P 500's breathtaking 18.2% drop for the week was the second-worst ever. It was just behind the 18.6% decline for the week ending July 21, 1933, during the Great Depression.

Many fear-stricken investors are scared to jump back in. "There are a lot of good buys out there now, but who wants to buy them when the selling pressure is so heavy?" wonders William Rutherford, president of Rutherford Investment Management, who was selling shares on Friday. "We need some stability."

Bonds fell Friday as the overnight dollar Libor rate fell and amid ongoing speculation that the Treasury department will issue a lot of new supply in order to fund its efforts to stabilize the credit market. The 10-year note dropped 24/32 to 101-24/01/32 for a yield of 3.87%, while the 30-year bond sank 14/32 to 106-12/32 for a yield of 4.12%.

The dollar index was higher. Gold futures fell. Oil futures tumbled to $78.14, down $8.45 per barrel in Nymex trading.

Friday morning, President George W. Bush said his administration is taking steps to increase deposit insurance, expand loans to corporations, and inject funds into the banking system. Bush said the government's financial rescue plan was aggressive enough and big enough to work, but would take time to fully kick in. "We can solve this crisis and we will," he said in brief remarks from the White House Rose Garden.

Bush spoke as finance ministers and central bankers from the Group of Seven -- the United States, Japan, Britain, Germany, France Italy and Canada -- were gathering in Washington for a weekend meeting. G7 ministers are under pressure to produce coordinated program to cope with global financial crisis and a looming recession. An Associated Press report said the president noted that major Western countries were working together in an attempt to stabilize markets and end the spreading panic, including coordinated cuts in interest rates.

Friday afternoon, news reports said that G7 finance ministers and central bankers are apparently in a rift regarding the degree of unified commitment to help stave off further contraction in stocks. The markets are hopeful but skeptical of "harmonized" action. "While the potential for a unified response this weekend could see some short covering in equities into the weekend (Wall Street is open Monday, Treasuries are closed), many suspect the official communique will fail to deliver a potent response that might shore up banks," wrote Action Economics Friday afternoon.