NEW YORK (AP) — The Dow Jones industrial average plunged below 7,000 Monday for the first time in more than 11 years as investors grew pessimistic about the health of banks, and in turn the economy.
The Dow hadn't traded below 7,000 since Oct. 28, 1997, and last closed below that mark on May 1 of that year. The credit crisis and recession have now slashed half the average's value since it hit a record high over 14,000 in October 2007.
Investors are again fleeing stocks in response to bad news about financial companies. The government said it would give American International Group Inc. another $30 billion in loans, in addition to the $150 billion it has already given the insurer. AIG also said it lost a record $61.7 billion in the fourth quarter.
Investors are worried about European financial companies, too. HSBC PLC, Europe's largest bank by market value, reported a 70 percent drop in 2008 profit and said it needs to raise $17.7 billion and cut 6,100 jobs.
Meanwhile, billionaire Warren Buffett wrote in his annual letter to investors Saturday he is sure "the economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall."
Buffett said his insurance and investment company, Berkshire Hathaway Inc., had its worst year ever in 2008. The grim news from one of the world's most respected investors came a day after the Commerce Department said gross domestic product for the fourth quarter shrank at an annual rate of 6.2 percent.
Better-than-expected government data on Monday showing that personal spending rose 0.6 percent in January and incomes rose 0.4 percent helped stock futures pare losses. But the report was not enough to push stock futures into positive territory.
In the first half-hour of trading, the Dow Jones industrial average fell 110.31, or 1.56 percent, to 6,952.62.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 12.63, or 1.72 percent, to 722.46, and the Nasdaq composite index fell 17.50, or 1.27 percent, to 1,360.34.
"As bad as things are, they can still get worse, and get a lot worse," said Bill Strazzullo, chief market strategist for Bell Curve Trading. Strazzullo said he believes there's a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.