Stocks plunged Wednesday, with the Dow industrials posting their second-worst session of the year, as the U.S. government's emergency rescue of American International Group (AIG) intensified fears about the stability of financial markets. The Federal Reserve (Fed) said late Tuesday that it was extending a two-year $85 billion bridge loan to troubled insurer AIG in exchange for a stake in the company of nearly 80 percent. AIG will have to pay back the loan in full by selling off some of its assets. The company had been on the verge of collapse as it scrambled to raise cash in the aftermath of the subprime mortgage collapse and subsequent tightening of credit. Wednesday's sell-off came after the government's rescue of mortgage giants Fannie Mae and Freddie Mac, the bankruptcy of investment bank Lehman Brothers, and ongoing worries about the health of regional bank Washington Mutual and other firms. Financial stocks tumbled, with Goldman Sachs down 21 percent and Morgan Stanley down 29 percent on concerns about the companies' profits and ability to raise capital in the current environment. Both firms reported better-than-expected quarterly results Tuesday. Lehman shares fell 57 percent, while Barclays fell 2 percent, Merrill Lynch fell 12 percent, and Washington Mutual fell 8 percent. In economic news, construction of new U.S. homes and apartments fell to the lowest level in 17 years last month, the government reported. Oil prices rose as investors watched the developments on Wall Street, the falling U.S. dollar, and the weekly U.S. petroleum inventory report, which showed gasoline supplies at their lowest level on record. Light sweet crude for October delivery jumped $6.01 to $97.16 a barrel after selling at a seven-month low on Tuesday. The dollar fell versus the euro and the yen. The Dow Jones industrial average fell 449.36, or 4.1 percent, to 10,609.66, its lowest level since November 2005. Twenty-seven of the index's 30 components fell, led by financial firms AIG, whose shares fell 40 percent, Citigroup, which lost 15 percent, and J.P. Morgan Chase, which lost 8 percent. Other losers included Boeing, General Electric, General Motors, and Home Depot. The broader Standard & Poor's 500 index fell 57.21, or 4.7 percent, to 1,156.39, its lowest point since April 2005. The technology-heavy Nasdaq composite index fell 109.05, or 4.9 percent, to 2,098.85, its lowest point since August 2006. The New York Stock Exchange composite index fell 352.74 to 7,440.39. The American Stock Exchange composite index fell 40.81 to 1,794.79. And the Russell 2000 fell 34.27 to 676.38.
