Lack of confidence pushes Wall Street even lower

Wall Street has ended another highly volatile session with a big last-minute loss as the market’s stubborn worries about a protracted economic downturn and tight credit erased budding optimism about a housing sector recovery.

The Dow Jones industrial average skidded 203 points to its lowest close in 5 1/2 years, with almost all the decline coming in the last 10 minutes of the session.

The Street’s back-and-forth moves were typical for a turbulent market that has seen many recent rallies evaporate – particularly as hedge and mutual funds sell off even strong assets so they can meet investors’ demands for their money back. These forced sell-offs tend to happen late in the day, when the funds figure out how much cash they’ll need to meet redemptions.

But the market’s anxiety also increases as the closing bell approaches, especially with growing concern about the spread of the financial crisis overseas. News from Asia and Europe tends to break overnight and before trading on Wall Street resumes in the morning.

“We were trading higher earlier on very light volume, but the buyers just couldn’t gather enough momentum to keep it going,” said Alfred E. Goldman, chief market strategist at Wachovia Securities. “When confidence is razor-thin, the nervous tension goes way up and bam – the sellers take over.”

“It’s just an overall malaise about how bad the economic slump is going to be globally,” he said.

That malaise grew particularly after credit ratings agency Moody’s Investors Service in the last half-hour of trading Monday downgraded General Motors Corp. further into “junk” status, pointing to the sharp contraction of the U.S. auto market.

Shares of GM, one of the 30 Dow components, sank 50 cents, or 8.4 percent, to $5.45.

Earlier, banks got a boost after the Treasury said it signed agreements with nine financial institutions to buy stock in the companies this week. An upbeat home sales report also gave the market support until late afternoon.

The Dow fell 203.18, or 2.42 percent, to 8,175.77 after earlier rising by as many as 220 points. Even before the late-day selloff, it was an extremely volatile day for Wall Street – the Dow crossed between positive and negative territory 60 times during the session.

It’s been a devastating month for the stock market so far – if the Dow were to finish the month at Monday’s levels, it would be the worst month since September 1931. The blue-chip index is now 42.28 percent below its peak of 14,164.53, reached Oct. 9, 2007, and at its lowest closing level since April 1, 2003. On Monday, it did not plunge below its Oct. 10 trading low of 7,882.50.