Stocks tumbled Friday on escalating worries about the financial sector and rebounding oil prices. The major indexes fell more than 1 percent, with the Dow Jones industrials dropping more than 200 points.
An afternoon downgrade of automakers helped draw out sellers and put the Dow on pace for its lowest close since March. Treasury prices jumped as investors sought the safety of government debt.
And among financials, Merrill Lynch — which slashed earnings estimates for regional banks Friday — was the target of market rumors that it may issue its own profit warning. Merrill Lynch spokeswoman Jessica Oppenheim declined to comment. Merrill shares dropped $1.89, or 5 percent, to $35.80.
The rumors added to the market's anxiety, which ballooned Thursday when Citigroup Inc. warned of significant debt markdowns for the second quarter, Washington Mutual Inc. announced 1,200 job cuts and Moody's Investors Service decided late in the day to downgrade the two biggest bond insurers.
Troubling news about the financial sector has been piling up all week, driving the stock market back toward the levels it plummeted to in March. Earlier this week, investment banks posted profit declines, Fifth Third Bancorp said it need to raise $2 billion in capital, and two Bear Stearns hedge fund managers were charged with lying to investors — causing many investors to flee from stocks.
"There has to be reticence about getting back in," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. "It's definitely an ugly end to the week."
In late afternoon trading, the Dow slumped 210.06, or 1.74 percent, to 11,853.03. The blue chips haven't closed below 12,000 since March 17, when the market was worried about Bear Stearns Cos. collapsing.
Broader stock indicators also dropped Friday. The Standard & Poor's 500 index fell 24.40, or 1.82 percent, to 1,318.43, and the Nasdaq composite index fell 60.05, or 2.44 percent, to 2,402.01.
Declining issues outnumbered advancers by more than 5 to 1 on the New York Stock Exchange, where volume came to a heavy 1.42 billion shares.
The session also saw "quadruple witching" — the simultaneous expiration of four types of options contracts — that can lead to heavy trading near the start and end of the session. It could be contributing to the steepness of the day's pullback and was adding to volume.
Bond prices jumped as stocks sank. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.14 percent from 4.21 percent late Thursday.
As the economy faces a tight lending climate, it also struggles with surging fuel costs. Crude oil futures jumped $2.69 to settle at $134.62 a barrel on the New York Mercantile Exchange, recovering some of Thursday's drop of nearly $5 per barrel on news of a fuel price hike in China.
Investors are awaiting this weekend's meeting in Saudi Arabia of oil producers and consumer nations, which could bring some relief to the problem of soaring oil prices. But many analysts believe the gathering might end up being a mere finger-pointing session.
Bond insurer MBIA Inc. shares fell 83 cents, or 13 percent, to $5.63, and competitor Ambac Financial Group Inc. fell 10 cents, or 5 percent to $1.93, after losing their "AAA" rating from Moody's.
Moody's had already warned of a possible downgrade, and the move followed similar actions by rival agencies Standard & Poor's and Fitch Ratings. But it nevertheless underscored the troubles that the nation's money centers face.
Another ratings move hit stocks of automakers. Standard & Poor's Ratings Services placed the corporate credit ratings of General Motors Corp., Ford Motor Co. and Chrysler LLC on watch with negative implications. The classification means ratings have a one-in-two chance of being downgraded in the next three months.
S&P believes high fuel costs will hurt the U.S. auto market through 2009.
GM fell $1.05, or 7 percent, to $13.74, while Ford lost 50 cents, or 7.9 percent, to $5.82.
The dollar fell against most other major currencies, while gold prices fell.
The Russell 2000 index of smaller companies fell 15.61, or 2.12, to 722.22.
Overseas, Japan's Nikkei stock average dropped 1.33 percent. Britain's FTSE 100 fell 1.53 percent, Germany's DAX index declined 2.12 percent, and France's CAC-40 fell 1.79 percent.
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