Markets Swing Lower in Afternoon Trading

By JACK HEALY (The New York Times)
Economic jitters returned to Wall Street on Monday as American markets shaved off early gains and closed lower. The Dow Jones industrials average, which was up 213 points in the morning, finished 73.27 points or 0.8 percent lower, and the broader Standard & Poor’s 500 index lost 1.2 percent or 11.78 points.

Shares recovered some of their afternoon losses minutes before the close, but by and large, the day’s trading followed a now-familiar pattern: investors veered from rallying behind the latest government stimulus plan to quavering in the face of harsh economic realities.

Financial markets seesawed as investors took in news of China’s plan for an economic stimulus and the federal government’s plan to revamp its bailout of the insurance giant American International Group. They cheered the latest news of interventions in the deepening global economic crisis, but within minutes, the bloom was gone.

American markets hit their highest point of the day just after the 9:30 a.m. opening bell before beginning a steady march into the red.

“Confidence in the outlook has broken, and it will take some time to bring it back,” said Stuart Schweitzer, global markets strategist at J.P. Morgan Private Bank. “Investors would love a quick solution to all our problems, but it’s simply unrealistic to expect one. And that has been leading to a repeated cycle of hope and disappointment.”

Aside from basic materials and transportation, which eked out modest gains, every major sector closed down, with financial companies leading the race to the bottom. Goldman Sachs lost 9 percent on word it could post its first quarterly loss this year, and Morgan Stanley, Citigroup and Bank of America joined the decline.

Shares in General Motors lost nearly 25 percent of their value and closed at about $3.30 a share after Deutsche Bank said G.M.’s shares were essentially worthless.

The technology-heavy Nasdaq composite index closed down 1.9 percent or 30.66 points.

A.I.G. shares gained 8.5 percent Monday afternoon following the government’s announcement that it was purchasing $40 billion of the company’s stock and restructuring the terms of its bailout. Neel Kashkari, interim assistant secretary of the Treasury, called the measure “necessary to maintain the stability of our financial system.”

“We recognize that the financial system remains fragile and we continue to stand ready to prevent systemic failures,” he said at a meeting Monday in New York, according to remarks released by the Treasury Department.

Hope ruled the morning, as investors cheered the Chinese stimulus plan as a reassuring sign that one of the world’s most powerful economies had made a commitment to stave off a deep global recession.

“This is a fundamentally a good sign that shows that this government is trying to bring them out of the malaise the world’s found,” Ryan Detrick, a technical analyst at Schaeffer’s Investment Research, said. “It does show that there’s some confidence.”

But they cautioned that the stimulus would not be a panacea.

“This is not going to prevent the global slowdown,” said Bart Melek, a commodities analyst at BMO Capital Markets. “It’s going to reduce the duration and depth later, in 2009. These policies work with a lag.”

The Chinese package will include $586 billion of spending on railways, airports and other infrastructure, and on social welfare projects, the authorities in Beijing said late Sunday. Investors are hoping that will help to take up some slack as economies slow in other countries.

On Monday, American commodities markets rode the same roller coaster as stocks. Crude oil prices shot up 4.5 percent in the morning, fell back in the afternoon, then surged to $62.58 a barrel in late trading. Gold was up at $750.90 an ounce, and silver, platinum, corn and soybeans were all higher, in what could be an attempt by investors to cover their short positions, Mr. Melek said.