Dow Hits 12-Year Low; Bank Stocks Pounded

All the major indexes closed the week down more than 4 percent. Stocks have been battered by concerns that government regulators could nationalize parts of the banking sector and wipe out shareholders. After a rebound Tuesday, stocks spent most of the week sinking deeper.

The volatility continued yesterday when data showed that the economy shrank more than previously thought late last year and the government stepped in for a third time to bolster Citigroup, the large New York bank. The company's stock plummeted 39 percent, to $1.50 a share, breaking a record on the New York Stock Exchange for number of shares traded in a single session. "The week began on a sour note, and it has ended on a sour note," said Peter I. Cardillo, chief market economist with New York-based Avalon Partners.

The Dow Jones industrial average, an index of 30 blue-chip stocks, fell 1.7 percent, or 119.15 points, to 7062.93, its lowest close since May 1997. The Standard & Poor's 500-stock index, a broader market measure, fell 2.4 percent, or 17.74 points, to 735.09, its lowest close since December 1996. The Dow and S&P lost 12 percent and 11 percent, respectively, this month, making it their worst February since 1993. The tech-heavy Nasdaq composite index yesterday was down 1 percent, or 13.63 points, to 1377.84.

Now market analysts are preparing for another tough batch of economic news next week. The government will release data on the manufacturing and service sectors, capped with the release of new unemployment figures on Friday. The big question is whether the unemployment rate reached 8 percent last month, analysts said.

The banking sector -- chiefly Citigroup -- took the brunt of investor concerns yesterday after the government moved to take a large ownership stake in the firm. That dilutes the stake held by Citigroup's current shareholders. Citigroup's stock has plunged 78 percent this year.

The government's move to stabilize Citigroup dragged down other parts of the financial sector, which had the deepest losses yesterday. Bank of America, which has received $45 billion in government aid, fell 26 percent; Wells Fargo fell 16 percent.

"It weighs heavily on the financial sector in general," said Daniel Faretta, senior market strategist at Lind-Waldock, a Chicago-based trading firm. "They may have to go into Bank of America or some of the other larger banks and help them out, as well."

Poor economic news also unnerved investors yesterday. The U.S. economy shrank 6.2 percent during the fourth quarter of 2008, a bigger drop than initially thought and the worst showing in about 25 years. Meanwhile, consumer confidence fell in February to 56.3, down from 61.2 in January, according to the Reuters/University of Michigan Surveys of Consumers. Few consumers now expect the recession to end anytime soon despite the new economic stimulus package passed by Congress, according to the survey.

The health-care sector also struggled yesterday. It is being weighed down by concerns that President Obama's budget proposal includes provisions that would scale back profits at drugmakers and insurance companies. Shares of Merck and Abbott Laboratories, two large drug manufacturers, fell 7 percent and 6 percent, respectively.

General Electric's stock fell 6 percent, to $8.51 a share, as the conglomerate announced it would cut its dividend to 10 cents a share from 31 cents, a move it expects to save $9 billion. J.P. Morgan Chase and Textron announced earlier this week that they would be cutting their dividends.