Wall Street: Wednesday close
THE virtual collapse of once-mighty
The Dow Jones Industrial Average, already pressured by worries that the US economy might be falling deeper into recession, dropped 160.74 points or 1.63% to 9,711.86. The Nasdaq Index slipped 48.00 points or 2.48% to 1,887.97.
Ratings agency Standard & Poor's triggered the selling in Enron when it said it doubted that a company-saving merger with rival Dynegy would be completed and that a voluntary Chapter 11 bankruptcy filing by Enron was a 'distinct possibility' if the merger fell through. Soon after S&P's announcement, Dynegy confirmed it was ditching the deal, worth $23bn. when it was proposed a month ago. Enron, saddled with an estimated $13bn. in debt, said it would pay only its most pressing bills as it scrambled to stay afloat. The Texas-based company had been undermined by losses springing from investment trading partnerships allegedly engineered by former executives and now under investigation by the watchdog Securities and Exchange Commission. Enron's latest troubles will likely fuel speculation that Wessex Water, which it bought for 1.36bn. pounds three years ago, will be sold quickly to bolster its deteriorating financial situation. Dynegy shares stumbled $4.92 or 12% to $35.97.
Shares in companies linked to Enron fell as well. Citigroup and JP Morgan Chase, which had each loaned several hundred million dollars to the energy titan, lost $2.66 or 5.3% to $47.89 and $2.21 or 5.6% to $37.59 respectively. Energy producers were caught up in the selling. BP's US shares dipped 93 cents or 0.8% to $43.25.
The Enron debacle helped further unsettle markets already jittery about the state of the US economy, which remains in a slump despite interest rate cuts, a big tax cut and promise of a $100bn. fiscal stimulus package from Congress. On Monday, a committee which officially tracks economic cycles said the US had entered a recession in March.
Techs were pressured by reports that Intel was having difficulty supplying its new Pentium 4 computer chips. And JP Morgan told clients that their sources had indicated that Intel's demand for raw wafer and photoresist dropped off in October and November. 'We believe Intel's fourth quarter will be characterized by a strong October, followed by a somewhat weak November and December,' said JP Morgan analyst Eric Chen said. He said it would be 'diffcult' for Intel to reach its sales forecasts. Intel shares fell 31 cents or 1% to $31. Among other chipmakers, Applied Materials dipped $1.92 or 4.6% to $40.05 and Advanced Micro Devices was marked down 54 cents or 3.9% to $13.26. Microsoft lost 71 cents or 1.1% to $63.03. IBM shed $1.93 or 1.7% to $112.27 as it announced it was laying off 1,000 workers in its semiconductor group.
Negative words from JP Morgan also weighed on Boeing, down $1.30 or 3.7% to $34.20, and General Electric, the world's richest company by market value, off $1.77 or 4.3% to $39.30. Acambis, the UK pharmaceutical maker, jumped $4.32 or 13% to $37.70 in regular trading and leapt to $42.15 in extended hours trading on a report the US Government had signed a contract to buy 150 million doses of smallpox vaccine from a group of companies including Acambis.
