AP
Business Highlights
Tuesday October 7, 6:47 pm ET

Stocks tumble as Street worries about financials

NEW YORK (AP) -- The misery worsened on Wall Street Tuesday, with stocks piling on losses late in the session and bringing the two-day decline in the Dow Jones industrials to more than 875 points amid escalating worries about credit markets and the financial sector.

The Dow lost more than 500 points and all the major indexes slid more than 5 percent. The Standard & Poor's 500 index saw its first close below 1,000 in five years.

Steps by the Federal Reserve to reinvigorate the dormant credit markets ultimately weren't enough to calm nervous investors. News about financial companies only added to their despondent mood.

Fed to buy massive amounts of short-term debt

WASHINGTON (AP) -- Frantically trying to stop the bleeding on Wall Street, the Federal Reserve took a first-time step Tuesday to get cash directly to businesses and hinted that interest rates could come down soon. Stocks continued their free fall anyway and hit new five-year lows.

The central bank invoked emergency powers to lend money to companies outside the financial sector and buy up mounds of commercial paper, the short-term debt that firms use to pay for everyday expenses like salaries and supplies.

Bernanke: More economic pain ahead

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke warned Tuesday that the financial crisis has not only darkened the country's current economic performance but also could prolong the pain.

The Fed chief's more gloomy assessment appeared to open the door wider to an interest rate cut on or before Oct. 28-29, the central bank's next meeting, to brace the wobbly economy.

Bernanke said the Fed will "need to consider" whether its current stance of holding rates steady "remains appropriate" given the fallout from the worst financial crisis in decades. If the Fed does lower its key rate from 2 percent, it would mark an about-face.

Alcoa's 3Q profit falls 52 percent

PITTSBURGH (AP) -- Alcoa Inc., one of the world's largest aluminum producers, on Tuesday reported a 52-percent drop in third quarter profits and said it would conserve cash by suspending its stock buyback program and all non-critical capital projects.

Alcoa, the first component of the Dow Jones industrial average to report earnings, said results were hurt by sharply lower aluminum prices, weaker demand and a charge from curtailing production at a Texas smelter.

The company reported earnings of $268 million, or 33 cents per share, for the three months ended Sept. 30. That compared with $555 million, or 63 cents per share, during the same period last year.

Retirement accounts have lost $2 trillion -- so far

WASHINGTON (AP) -- Americans' retirement plans have lost as much as $2 trillion in the past 15 months -- about 20 percent of their value -- Congress' top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers' nest eggs.

The upheaval that has engulfed financial firms and sent the stock market plummeting is also devastating people's savings, forcing families to hold off on major purchases and even delay retirement, Peter Orszag, the head of the Congressional Budget Office, told the House Education and Labor Committee.

As Congress investigates the causes and effects of the meltdown, the panel pressed economists and other analysts on how the housing, credit and other financial troubles have battered pensions and other retirement funds, which are among the most common forms of savings in the United States.

Fed minutes show policymakers saw balanced risks

WASHINGTON (AP) -- Even in the midst of a severe meltdown on Wall Street, Federal Reserve officials at their September meeting believed the risks from weaker growth and higher inflation were roughly equal.

The Fed officials discussed the financial turmoil during their closed-door meeting on Sept. 16, according to minutes released Tuesday. The meeting occurred a day investment bank Lehman Brothers collapsed -- the largest bankruptcy in U.S. history. It was also hours before the Fed announced it was extending an $85 billion loan to rescue American International Group, the world's largest insurance company.

While concluding that it would not change interest rates at the September meeting, the minutes showed some members said a policy response from the central bank might be needed.

August borrowing drops at 3.7 percent rate

WASHINGTON (AP) -- Consumer borrowing fell in August for the first time in more than a decade as households, battered by rising job layoffs and the decaying economy, cut back sharply on their use of credit.

The Federal Reserve said Tuesday that consumer borrowing fell at an annual rate of 3.7 percent in August, before the financial crisis became acute in September, forcing the government to approve a $700 billion rescue of the financial industry.

August's decline in consumer credit marked the first time that total borrowing had fallen since a 4.3 percent rate of decline in January 1998.

Credit barely eases after Fed plans to buy paper

NEW YORK (AP) -- The grip on the credit markets loosened just barely on Tuesday after the Federal Reserve said it would buy commercial paper, the unsecured short-term debt that companies sell for their short-term cash needs.

In the eyes of many market participants, the move to grease the commercial paper market could do more to get people lending again than the $700 billion bailout plan passed by Congress.

Oil prices recover slightly after steep drop

NEW YORK (AP) -- Oil prices swung higher Tuesday, snapping a four-day plunge as investors temporarily halted their frantic selling to see whether the government's sweeping economic bailout can stem a widening global downturn.

Light, sweet crude for November delivery rose $2.25 to settle at $90.06 a barrel on the New York Mercantile Exchange, after earlier trading as high as $93.02.

Prices had lost nearly $13 in the past four trading sessions as a widening economic crisis spreads overseas and undercuts energy demand forecasts.

Insurance giant AIG's role in market crisis probed

WASHINGTON (AP) -- Executives at American International Group Inc. hid the full range of its risky financial products from auditors as losses mounted, according to documents released Tuesday by a congressional panel examining the chain of events that forced the government to bail out the conglomerate.

The panel sharply criticized AIG's former top executives, who cast blame on each other for the company's financial woes.

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept an $85 billion government loan that gives the U.S. an 80 percent stake in the company.

Iceland teeters on the brink of bankruptcy

REYKJAVIK, Iceland (AP) -- This volcanic island near the Arctic Circle is on the brink of becoming the first "national bankruptcy" of the global financial meltdown.

Iceland has formidable international reach because of an outsized banking sector.

The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes -- their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.

By The Associated Press

The Dow fell 508.39, or 5.11 percent, to 9,447.11.

Broader indexes also fell. The S&P 500 index declined 60.66, or 5.74 percent, to 996.23, the first close below the 1,000 mark since September 2003. The Nasdaq composite index fell 108.08, or 5.80 percent, to 1,754.88.

Light, sweet crude for November delivery rose $2.25 to settle at $90.06 a barrel on the New York Mercantile Exchange, after earlier trading as high as $93.02.

In other Nymex trading, heating oil rose 3.17 cents to settle at $2.5057 a gallon, while gasoline futures rose less than half a penny to settle at $2.0628. Natural gas for November delivery fell 6.7 cents to settle at $6.768 per 1,000 cubic feet.

In London, November Brent crude rose 98 cents to settle at $84.66 per barrel on the ICE Futures exchange.