Dow plunges 500 points

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[h=1]Dow plunges 500 points[/h]
By Annalyn CenskyAugust 4, 2011: 3:54 PM ET
The Dow has now lost all of the ground it gained in 2011. Click the chart for more stock market data.


NEW YORK (CNNMoney) -- Whoops! There goes any progress stocks made in 2011.
Stocks plunged Thursday, with the Dow tumbling 500 points just before the close, as fear about the global economy spooked investors.


"The conventional wisdom on Wall Street was that the economy was growing -- that the worst was behind us," said Peter Schiff, president of Euro Pacific Capital. "Now what people are realizing is the stimulus didn't work, and we may be headed back to recession."U.S. markets were already sharply lower on widespread worries, including the weak job market. But the selling gained momentum as Japanese and European policymakers stepped in with dramatic measures to shore up their financial markets.
There's "total fear" in the market, said Bob Doll, chief equity strategistat the world's largest money manager, BlackRock.
All three major indexes tumbled more than 4% Thursday and erased all their gains for the year. The indexes have also pushed into 'correction' territory - defined as a 10% drop from their highs earlier this year. Over the past 10 days alone, the Dow, S&P 500 and Nasdaq have dropped about 8%.
"In the last two weeks, we've been through the ringer," said Rich Ilczyszyn, market strategist with futures broker Lind-Waldock. "When we start looking at the recovery, there's nothing to hang our hats on anymore."
The market's fear gauge -- the VIX (VIX) -- surged 26% to a reading of 29.5. That's still just shy of 30 -- the level that signals a high degree of fear. With the VIX up 67% from the start of the year, it's clear that fear has been escalating.
[h=2]Recession warnings on the rise[/h]A few minutes ahead of the closing bell, the Dow Jones industrial average (INDU) was down 506 points, or 4%, with Alcoa (AA, Fortune 500), Caterpillar (CAT, Fortune 500) and Bank of America (BAC, Fortune 500) among the biggest drags on the blue chip index.
The S&P 500 (SPX) was down a staggering 55 points, or 4.4%.
The Nasdaq (COMP) lost 123 points, or 4.6%. Some of the better performing tech stocks, Apple (AAPL, Fortune 500), Google (GOOG, Fortune 500) and Netflix (NFLX) were all down between 2% and 3%.
Fears about a global slowdown are at the forefront of investors' minds amid recent weak economic data. Early Thursday, the latest reading on jobless claims showed a large number of Americans remain unemployed.
[h=2]10 job killing companies[/h]Adding further to investors' jitters, Wall Street is waiting for Friday's jobs report, which BlackRock's Doll said was adding to the selling pressure.
The report is now a bit of wild card after it has come in far below forecasts for the last two months.
 
The Associated Press
Posted: Aug 6, 2011 9:35 AM ET
Aug 6, 2011 11:58 PM ET

U.S. President Barack Obama remained largely silent as China, the largest foreign holder of U.S. debt, demanded Saturday that America confront its "addiction to debts" in the wake of Standard & Poor's decision to downgrade the U.S. credit rating.

The president, spending the weekend at Camp David, left it to press secretary Jay Carney to say it's clear Washington "must do better" in tackling soaring deficits and other economic woes.
A statement from Carney said talks that produced Tuesday's $2 trillion US compromise on raising the country's borrowing limit had been too drawn-out and "divisive." But the statement didn't directly address Friday's move by Standard & Poor's to drop U.S. government debt to AA+ from triple-A.
However, later in the day administration officials sharply disputed S&P's judgment and challenged its numbers, saying the deal's deficit-cutting value had been drastically understated. They charged the company's analysis was rushed and faulty.

"The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking," said Gene Sperling, head of the White House council of economic advisers. "It smacked of an institution starting with a conclusion and shaping any arguments to fit it."

But in a conference call with reporters on Saturday, S&P officials said the company's carefully reasoned conclusion is that political gridlock in Washington has made the nation increasingly unable to control its debt.
The downgrade delivered a potentially serious blow to the nation's struggling recovery, raising the prospect of higher interest rates and continuing stock market losses after the big selloff of the last two weeks.

S&P told investors the deficit accord "falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."
The day began with Chinese officials issuing a blistering commentary on the situation.
[h=3]Official response[/h]China currently owns $1.2 trillion of U.S. Treasury debt, the largest stake of any central bank. The commentary carried by the state-run Xinhua News Agency was Beijing's first official response to the S&P decision.

China, as the largest creditor of the United States, says it 'has every right now to demand' the U.S. address its structural debt problems and 'ensure the safety of China's dollar assets.'Tyrone Siu/Reuters"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," Xinhua said.
It said the rating cut would be followed by more "devastating credit rating cuts" and global financial turbulence if the U.S. fails to learn to "live within its means."

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," it said.
With Obama absent in replying to the S&P downgrade, it was up to aides to defend his administration, noting that two other ratings agencies - Moody's and Fitch - are for now keeping the triple-A rating for U.S. debt.

Carney added that the president will urge committee members and other lawmakers "to put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences."

Accept supervision
Xinhua said the U.S. must slash its "gigantic military expenditure and bloated social welfare costs" and accept international supervision over U.S. dollar issues.
Last month, China's top general, Chen Bingde, also linked America's financial woes to its military budget and asked whether paring back on defence spending wouldn't be the best thing for U.S. taxpayers.
Such comments reflect Beijing's desire that Washington reduce its military presence in Asia. The U.S., rattled by China's military buildup, also routinely chides Beijing for its fast-growing defence spending.
Xinhua also suggested a new global reserve currency might be necessary to replace the dollar, a position China has frequently advocated.

"Mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad," Xinhua said. "To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."

Jitters felt in Asia
Jitters over the U.S. handling of its debt problems were also being felt elsewhere in Asia, said Kishore Mahbubani, Singapore's former ambassador to the United Nations.
The dean of Singapore's Lee Kuan Yew School for Public Policy said the last-minute agreement by the U.S. Congress to lift the debt limit and avoid default has policymakers in Asia questioning the stability of U.S. global leadership.

"It's definitely undermined U.S. credibility," Mahbubani said late Friday. "Everyone is wondering if you have such a dysfunctional political process, how can you provide global leadership. It's very dangerous for the world."
 
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