Markets plunge on credit fears

NEW YORK - Wall Street's deepening fears about a spreading credit crunch sent stocks plunging again Thursday, with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points. The catalyst for the market's latest skid: a French bank's announcement that it was freezing three funds that invested in U.S. subprime mortgages.

The announcement by BNP Paribas raised the specter of a widening effect of U.S. credit market problems. The idea that anyone - institutions, investors, companies, individuals - can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's anxiety. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

The concerns that arose in Europe and spilled onto Wall Street underscored the potential worldwide ramifications of an implosion of some subprime loans and perhaps also weakened arguments that strength in the global economy could help keep profit growth going in the U.S. among large companies that do business overseas.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spreading into the general economy.

"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."

Thursday's pullback continued an erratic pattern of triple-digit moves in the Dow since the index closed at a record 14,000.41 on July 19. Eleven of the 15 ensuing sessions have ended in a triple-digit gain or loss. Gains have been evaporating at the first mention of trouble in housing, subprime lending or the credit markets.

With Thursday's decline, the Dow is about 730 points, or 5.2 percent, below its record close. Some experts have been calling for a textbook correction - a pullback of at least 10 percent. At its lowest close since the market's high, Friday's finish of 13,181.91, the Dow was 5.85 percent below the record.

The pullback came after a BNP Paribas unit said it was suspending three funds together worth about $3.79 billion and wouldn't make investor redemptions until it could determine net asset values.

The funds invest in part in subprime mortgages through a process known as securitization. Investment banks bundle together mortgages - including those from subprime borrowers - and sell them off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking the steady flow of income from homeowners making their mortgage payments.

"It just kind of brought the fear back," said Douglas Peta, market strategist at J.& W. Seligman in New York. "In the last couple of days I think people maybe thought that an all-clear had been sounded," he said referring to some of the subprime loan concerns.

Japan acts

TOKYO - Japan's central bank injected 1 trillion yen ($8.4 billion dollars) into money markets early today amid a Tokyo stock plunge and growing global worries about dubious U.S. mortgages.

Economy Minister Hiroko Ota tried to allay fears about a fallout on the Japanese financial system, calling the damage from U.S. subprime mortgages here "limited."

The Bank of Japan's move came as the Nikkei 225 index plunged more than 2 percent in early trading today.

The Associated Press