Driving the gloom was a mixture of issues: worries about rising oil prices and food price inflation, interest rate worries, concerns about the financial health of US banks and worries about the car and airline industries. Ratings group Standard & Poor's said it may cut the ratings on Ford, General Motors and Chrysler, as a result of the continuing impact of high oil and petrol prices which have forced the companies into restructure mode. Shares in GM and Ford both fell sharply as a result.
But concerns about the health of US banks and financial groups like the quasi-government mortgage insurers, Freddie Mac and Fannie Mae, hit sentiment: on to of the outbreak of bad news from regional banks and Citigroup's warning of more losses in the current quarter, the S&P 500 banking sub index fell to a 12 year low.
That helped send the Dow down 220 points, or 1.83%; the S&P 500 dropped 24.90 points, or 1.85% and Nasdaq finished down 55.97 points, or 2.27%. For the week the Dow ended 3.8% lower, the S&P fell 3.1% and Nasdaq dropped 2%. The S&P 500 has now lost more than 10% this year: at one stage around five weeks ago it was within sight of going positive for the first time this year.
In Europe shares also fell to the lowest in three months on those concerns about the health of banks and high oil prices. Banks like UBS and Deutsche fell while food and beverage groups like Unilever and Danone dropped after brokers issued sell outlooks based on the pressures from food price inflation.
The Dow Jones Stoxx 600, the major continent wide index, fell 3.5% to bring its fall for the past three weeks to 8.4%. It finished Friday at its lowest since March 17. Other Euro indexes for large cap stocks also fell by around 3.5%. The Stoxx 600 has fallen 19% this year.
Markets fell in 16 of the 18 western European countries covered by the indexes. Germany's DAX Index fell 2.8% over the week and France's CAC 40 lost 3.7%; while London's FTSE 100 shed 3.1%. For London it was the fifth weekly fall in a row as HBOS Plc, Britain's biggest mortgage lender led the way.
HBOS dropped 4.9% to 282.25 pence as the stock briefly went below the 275-pence level at which the bank is trying to raise $US7.9 billion in much needed capital. It was the second time this happened in three weeks. The weakness is making London investors worried, especially after one broker forecast the bank's share price might fall even further, to around 250 pence.
The renewed concern about the health of banks and other financial stocks on both sides of the Atlantic tended to slightly overshadow the continuing worries about high oil and food prices. New York oil price futures rose 2% Friday to $US134.70 a barrel on Middle East tensions and a weaker dollar.
The new problems in Nigeria over the weekend will make sure oil moves back to the top of the worry list today and tonight. US transportation giant, FedEx slid 6.3%, the lowest since September 2005, after reporting its first quarterly loss in 11 years. The company said earnings were "difficult to predict'' because of volatile fuel prices and an "uncertain economic outlook''.
General Motors shares fell 16% to $US13.79 and Ford dropped 7.3% to $US5.81. S&P said it had placed the carmakers' credit rating, already five levels below investment grade, on negative review. The ratings group said that while car groups will be able to pay their debts this year, their cash reserves may shrink to "undesirable levels'' by the end of next year.
Ford said Friday that its losses will increase this year because o $US4-a-gallon petrol's negative impact on sales of large pickup trucks. Ford is postponing work on a major new model, as is General Motors. Ford said its earnings backbone in recent years, Ford Motor Credit, will also have a loss this year on plunging levels of new business.
In Asia meanwhile shares declined for the second week, led by banks, carmakers and technology companies, on those credit market worries from the US and fears about high oil prices, inflation and rising interest rates.
The Indian market will be hammered after news that the latest annual inflation rate hit 11.05% earlier this month. It was a sharp rise from 8.72% in late May. China's market rose Friday after oil and most fuel prices were lifted by the government, but it was still down for the week.
The MSCI Asia Pacific Indexes eased 0.4% over the week, a big improvement on the 6.5% drop the week before. Japan's Nikkei Index lost 0.2% and the Australian market was off 1%, all of which came in a rough day's trading on Friday. Pakistan's Karachi market shed 10% last week on a surprise fall in foreign investment.
China's CSI 300 Index rose 2.8% on Friday but was down 4.4% over the week, extending the four- week decline to 23% and 52% from the all time high last October.
