US stocks were mostly lower as ongoing credit market fears drowned out any cheers from a sharp drop in crude prices. The Dow closed below 11000 for the first time since July 2006, but technology stocks helped the NASDAQ etch out modest gains.
The Dow fell 92.65, or 0.84% to 10962.54, having shed as much as 250 points early in the session. The broader S&P 500 dropped 13.39, or 1.09% to 1214.91, while the NASDAQ managed to add 2.84 points, or 0.13% to 2215.71.
Fannie Mae and Freddie Mac continued their slump as investors expressed scepticism towards the government’s rescue plan, which was announced over the weekend. The plan would extend the companies’ lines of credit and allow the Treasury to buy their stock.
On Tuesday, Fannie Mae dropped 27.3%, while Freddie Mac closed 26% lighter. The companies have lost more than 70% over the past month.
Adding to the prevailing sense of gloom, Federal Reserve chairman Ben Bernanke advised congress that the economy was facing numerous strains. These included housing and financial market weakness, a declining dollar and rising crude prices.
On the upside, Lehman Brothers added 6.6% on speculation that the company was going private.
Among the sector’s Dow components, Citigroup fell 4.3%, JPMorgan shed 2.1% and Bank of America dropped 8.1%.
Regional banks continued to slide on the back of the government takeover of Indymac Bancorp, now called IndyMac Federal Bank. National City fell 4.5%, while Riverview Bancorp dropped nearly 16%.
Washington Mutual bucked the trend to rise 7.9%, following Monday’s 35% tumble.
Wachovia ended 7.8% lower after Oppenheimer & Co analyst Meredith Whitney downgraded it to underperform. She said Wachovia wouldn’t be able to cut costs fast enough to counter its shrinking capital.
U.S. Bancorp fell 2.7% after reporting weaker quarterly earnings versus a year earlier. The company also said it was forced to triple its loan-loss provision due to housing market weakness.
In other earnings news, Johnson & Johnson rose 1.9% after reporting higher sales and earnings that topped estimates. The company also lifted its full-year outlook.
Looking to technology stocks, Intel gained 1.2% ahead of the company’s second quarter earnings announcement.
After the close, the chip marker said second quarter net income rose 25% to US$1.6 billion, or US28c per share, from US$1.3 billion in the second quarter of last year. The result topped consensus estimates, sending the company’s shares up 1.3% in after hours trading.
Meanwhile, Microsoft shares gained 4% in anticipation of its results, which are due later this week.
Elsewhere, General Motors added 4.9% after flagging lay offs for salaried workers, suspension of its dividend and the sale of up to US$7 billion of assets.
Oil companies tracked the decline in crude prices. NYMEX light crude for August delivery fell US$6.44 to settle at US$138.74 a barrel.
Exxon Mobil fell 3.8%, while Chevron slid 3.6%.
COMEX gold for August delivery rose US$5 to settle at US$978.70 an ounce.
In economic news, the New York Empire State index, a regional manufacturing report, improved in July to a reading of negative 4.9 from negative 8.7 in the previous month.
Data showed that retail sales figures grew at a lower than expected 0.1% in June, while wholesale inflation jumped 1.8%, topping economists' forecasts. Over the past year wholesale prices have risen 9.2%, the fastest pace in 27 years.
UK Markets
Britain's blue chip index fell almost 2.5% on Tuesday to its lowest close since 2005. The broader market was hit by worries over economic growth, while a tumble in crude prices weighed on oil stocks.
The FTSE 100 slid 128.50 or 2.42% to 5171.90, down more than 20% for the year to date.
Banks were a big losing sector on the index. HSBC slipped 3.2%, Barclays fell 3.4% and Royal Bank of Scotland slumped 7.1%. HBOS was off 4.4%, while Lloyds TSB and Standard Chartered both fell around 3.2%.
The mining sector was also a standout loser as metal prices eased. Copper producer Kazakhmys lost 5.4% after denying speculation that a possible merger deal might involve a reverse takeover.
Aussie majors BHP Billiton and Rio Tinto lost 4.8% and 4.3%, while Anglo American, Xstrata, Vedanta Resources, Antofagasta and Lonmin fell between 4.1 and 6.4%.
A 4% drop in US crude prices dragged on heavyweight oil shares. BP and Royal Dutch Shell both closed around 2.8% lower.
Lower fuel costs helped boost travel companies with British Airways flying 1.7% higher and Thomas Cook up 2.1%.
BT lost 4.8% after the telco said it would invest 1.5 billion pounds to roll out super-fast broadband to up to 10 million UK homes by 2012 and would suspend its share buyback programme from 31 July.
Elsewhere, Carphone Warehouse shed 6.6% and Vodafone lost 2.4%.
UK housebuilders sank after a survey showed British house prices fell in June. Redrow, Persimmon and Bovis Homes lost between 1.1% and 3.1%.
European Markets
European stocks tumbled on Tuesday to a three-year low as investors speculated credit market losses would widen. However, a steep fall in oil prices helped the market end above the day’s lows.
France’s CAC 40 fell 81.38 or 1.96% to 4061.15 and Germany’s DAX lost 118.55 or 1.91% to 6081.70.
UBS tumbled 6.3% and Fortis slipped 11% after regulators said they may investigate whether its management misled shareholders.
Meanwhile, Ciba Holding shed 6.7% after Merrill Lynch cut its earnings estimates for the chemical maker on concern that higher raw-material costs would hurt profits.
Bucking the trend, Continental surged 11.6% after ball-bearing firm Schaeffler Group launched an unsolicited 11.2 billion-euro bid for the tyre maker.
Also on the upside, Volkswagen rallied 2.9% after announcing plans to build a manufacturing plant in Tennessee.
Japanese Markets
Japanese markets were hit on Tuesday, as banking stocks took a beating on eroding investor confidence in the US financial sector. Exporters lagged the market, hit by a stronger yen and worries about a slowdown in the US economy.
The Nikkei 225 fell 255.6 or 1.96% to 12754.56.
Local bank shares slid after the Nikkei business daily said the country's three largest banks together held about US$44.3 billion in debt securities from troubled US mortgage finance agencies Freddie Mac and Fannie Mae as at the end of March.
Mitsubishi UFJ Financial Group lost 5.3%, Mizuho Financial Group fell 5% and Sumitomo Mitsui Financial Group tumbled 6.1%.
Automaker Toyota lost 2.5%, Mazda fell 3%, Nissan shed 0.6% and Honda slid 2.8%.
Among other exporters, Fujifilm lost 3.7%, Sony fell 1.4% and Canon closed 2.6% in the red.
Hong Kong Markets
Hong Kong markets plummeted on Tuesday amid concern over mainland banks’ exposure to troubled US mortgage lenders Freddie Mac and Fannie Mae. The decline was broad based with few companies closing in positive territory.
The Hang Seng closed 839.69, or 3.81% lower to 21174.77.
HSBC Holdings, the most heavily traded stock of the day, let off 3% as sour sentiment about the US banking sector outweighed optimism over a government bailout.
Bourse operator Hong Kong Exchanges & Clearing plunged 7.1 %, also reflecting increasing market jitters.
China's largest bank ICBC sank 4.3% and China Construction Bank dropped 4.5%.
Insurer China Life lost 5.3%, while rival Ping An tumbled 7.1%.
Huaneng Power International was suspended from trade on rumours it incurred a surprise first-half loss. The stock was down 6.3% before it was halted.