Market tumbles amid bank fears

February 21, 2009 at 12:00a.m.

NEW YORK (AP) — Stocks pared their losses Friday after the White House sought to douse fears that the government would nationalize crippled banks.

White House press secretary Robert Gibbs said Friday afternoon the Obama administration continues to “strongly believe that a privately held banking system is the correct way to go.”

Stocks pulled well off their lows after the comments. Shares of financial bellwethers Citigroup Inc. and Bank of America Corp. plunged again Friday on worries the government will have to take control and wipe out shareholders in the process. Citigroup fell 16 percent, while Bank of America fell 4 percent in afternoon trading but also came off their lowest levels.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.67 billion shares.

The market’s slide followed steep drops in other major markets in Europe and Asia. Germany’s DAX and France’s CAC-40 each fell more than 4 percent, and Tokyo’s Nikkei fell 1.9 percent and the Hang Seng in Hong Kong fell 2.5 percent.

Stocks have fallen steadily over the past two weeks as investors lost confidence in multiple Obama administration programs aimed at bolstering the economy. Just this week the government finalized two major initiatives, a massive fiscal stimulus package and a relief plan for homeowners.

“There’s perceived disappointment from the lack of clarity from the Treasury (Department) for what it will do with the financial sector,” said Wasif Latif, portfolio manager at USAA Investment Management Co. “That’s hitting financials regularly.”

Both Citi and Bank of America, which also got hammered on Thursday, have been among the hardest hit by the ongoing turmoil in the industry and received multiple multibillion investments from the government.

Citi tumbled 41 cents to $2.10 while Bank of America, which touched a 26-year low earlier in the day, sank 17 cents to $3.76.

As investors dropped out of stocks, safer instruments like Treasury debt and gold rose. The price of the benchmark 10-year Treasury note rose sharply, sending its yield down to 2.72 percent from 2.86 percent. Gold jumped 3 percent to $1,005.60 per ounce.

A pair of poor earnings reports Friday only worsened sentiment about the economy. Lowe’s said fourth-quarter profit dropped 60 percent after customers cut back on spending and the company gave a full-year profit estimate that disappointed investors. Department store chain J.C. Penney said profits tumbled 51 percent.

“There’s still a big fear factor syndrome,” said Michael Strauss, chief economist and market strategist at Commonfund. “There is a focus on what is happening here and now instead of six months to nine months from now.”