* AIG has biggest loss in U.S. corporate history
* Dow closes below 7,000 for first time since May 1997
* S&P falls under 700 for first time since Oct 1996
* Dow off 4.2 pct; S&P off 4.7 pct, Nasdaq off 4 pct
(Updates with surge in VIX, Wall Street's fear barometer, in new
paragraph 8)
By Leah Schnurr
NEW YORK, March 2 (Reuters) - U.S. stocks slid to 12-year
lows on Monday as a record $61.7 billion loss for AIG and
another government bailout for the insurer heightened concerns
about the extent of the damage to the financial system.
Shares of companies that have found themselves on the wrong
side of President Barack Obama's proposed budget fell again,
with drugmakers and health insurers suffering a fourth day of
losses amid worries their profits are under threat. The Morgan
Stanley healthcare index <.HMO> has lost 26.4 percent over the
past four days and the AMEX pharmaceutical index <.DRG> has
dropped 12.3 percent over that same time span.
Disarray at banks around the world has pounded global stocks,
pushing the Dow Jones industrial average to its first close below
7,000 since May 1997. Selling of financial, energy and industrial
stocks briefly drove the S&P below 700 during the session for the
first time since October 1996.
"The fear is that there is no end in sight for bailouts for
the 'too big to fail' banks," said Fred Dickson, market
strategist and director of retail research at D.A. Davidson &
Co in Lake Oswego, Oregon.
"The step in by the government to basically launch the
third round of bailouts for Citigroup and the fourth round of
bailouts for AIG <AIG.N> has unsettled investors."
The Dow Jones industrial average <> slid 299.64 points,
or 4.24 percent, to 6,763.29. The Standard & Poor's 500 Index
<.SPX> fell 34.27 points, or 4.66 percent, to 700.82. The
Nasdaq Composite Index <> shed 54.99 points, or 3.99
percent, to 1,322.85.
All 30 Dow components ended in the red, while all 10 of the S&P's
sectors also were negative.
FEAR FACTOR ESCALATES
Wall Street's fear gauge, the Chicago Board Options Exchange
Volatility Index <.VIX>, jumped 13.6 percent to 52.65, ending at its
highest level since Jan 20, the day of President Obama's
inauguration.
Worries that a multitude of efforts to shore up the ailing bank
sector were not taking hold dragged the S&P financial index <.GSPF>
down 6.8 percent. Among laggards, Goldman Sachs <GS.N> fell 5.3
percent to $86.27 while Morgan Stanley <MS.N> slid 8.1 percent to
$17.95.
Under the government's latest revised rescue plan, AIG will
gain access to up to an additional $30 billion in new capital.
For details see []. Last fall, AIG received a
commitment for $150 billion in government aid. The company,
once the world's largest insurer, also reported a
fourth-quarter loss on Monday that was the biggest in U.S.
corporate history.
Shares of AIG ended flat at 42 cents on the New York Stock
Exchange.
The latest bailout comes on the heels of last week's plan
for the government to boost its equity stake in Citigroup <C.N> in
order to bolster the bank's capital base. Citigroup's stock lost 20
percent to end at $1.20 on the NYSE.
Other stocks hit by the Obama budget include higher
education lender Sallie Mae <SLM.N>, which is down 57 percent
in the last four days. Shares of Sallie Mae <SLM.N> have been hit by
a proposal in Obama's budget to axe the giant federally guaranteed
student loan program.
In Monday's session alone, Sallie Mae's stock plummeted
18.5 percent to close at $3.75 on the NYSE.
3M AND CHEVRON SLIDE
Investors fretful about the dire state of the economy and
poor prospects for corporate profits also dumped shares of
large manufacturers, with 3M Co <MMM.N> off 5.8 percent at
$42.84 and Caterpillar Inc <CAT.N> down 9.9 percent at $22.17.
Since the start of 2009, the Dow has lost nearly 23
percent, while the S&P 500 is off more than 22 percent after
attempting a rally off November lows.
Since Oct. 9, 2007, market high, the DJ Wilshire 5000 index --
one of the broadest measures of U.S. stocks -- is down 54.99 percent
or $10.9 trillion.
Underscoring the negative tone were comments from billionaire
investor Warren Buffett, who said "the economy will be in shambles
throughout 2009", further dampening investor confidence.
[].
Fresh data pointed to more damage in the economy after a
report from the Institute for Supply Management showed
manufacturing continued to contract in February, albeit at a
slower rate than expected. []
Chevron <CVX.N> was the Dow's biggest drag, falling 5.1
percent to $57.62, in sync with a sharp drop in oil prices as
the slowing global economy threatened to further hurt fuel
consumption. U.S. oil futures <CLc1> slid 10.3 percent, or
$4.61, to settle at $40.15 a barrel.
Trading was active on the New York Stock Exchange, with
about 1.98 billion shares changing hands, above last year's
estimated daily average of 1.49 billion, while on Nasdaq, about
2.31 billion shares traded, above last year's daily average of
2.28 billion..
Declining stocks outnumbered advancing ones on the NYSE by
a ratio of about 15 to 1, while on the Nasdaq, about eight
stocks fell for every one that rose.
(Editing by Jan Paschal)
