Stocks plummet; U.S., Netherlands ready bank funds
By Daniel Trotta and Kevin Krolicki
NEW YORK/WASHINGTON (Reuters) - Fear-driven selling sent U.S. stocks plummeting to five-year lows on Thursday, the eve of a G7 meeting of economic powers to try to halt a global spiral of financial distress and slowing growth.
The Dow dived below 8,600 for the first time since May 2003 and the S&P 500 dropped 7 percent as credit markets buckled. Both the Dow and S&P 500 have now lost more than 20 percent over a seven-day down streak.
"The market is in a phase now that it doesn't believe in anything," said Sasha Kostadinov, a fund manager and analyst for Shaker Investments in Cleveland, Ohio. "I don't know what will turn the sentiment."
Both the U.S. and Dutch governments readied public funds to shore up the capital of banks, matching a similar move a day earlier by Britain.
At the center of a financial crisis now almost a month old, credit markets remained in deep distress. With banks desperate to protect capital, the interbank cost of borrowing dollars rocketed. Three-month interbank rates for dollar loans hit their highest level of the year.
The U.S. Treasury plans to start injecting capital in U.S. banks as soon as this month, according to a financial policy source familiar with Treasury Secretary Henry Paulson's thinking.
That partial nationalization of American banks would represent an enlarged role for the U.S. government as the lender and investor of last resort.
The Dutch government also announced it was setting aside 20 billion euros ($27.5 billion) of capital to protect banks and said other European governments were planning similar measures. Continued...