Wall Street Sells Off Sharply

Wall Street sold off sharply Monday as concerns about a weakening credit market wiped out investors' enthusiasm about strong retails sales over the holiday weekend. The Dow Jones industrial average fell nearly 240 points.

The Dow's decline from its mid-October closing high is now 10.03 percent, putting the blue chip index past the 10 percent threshold that signifies a correction.

The swoon comes as investors were unnerved by another series of announcements that pointed to continuing problems in the credit markets, the result of home loan debt going bad under the weight of a faltering housing market.

Two banks had bad news: Citigroup Inc. warned it is looking to cut costs -- raising the possibility of further job cuts -- and HSBC Holdings PLC said it plans to bail out two funds it manages. To do so, Europe's largest bank plans to move about $45 billion of the fund's assets onto its balance sheet.

Meanwhile, The New York Federal Reserve, acknowledging "heightened pressures" in money markets that are expected to last through the rest of the year, said it plans to conduct a series of repurchase agreements aimed at boosting liquidity in the credit markets. The announcement from the New York Fed, which carries out monetary policy set by the U.S. Federal Reserve, essentially puts in writing many of the steps the Fed often takes at this time of year.

The Fed said it would inject $8 billion into the banking system on Wednesday. The amount of money is somewhat larger than in past years at this time.

A better-than-expected report on retail sales wasn't able to hold the market's early gains. Retail sales on Friday and Saturday combined rose 7.2 percent to $16.4 billion from the same two-day period a year ago, according to ShopperTrak, which tracks total sales at more than 50,000 U.S. retail outlets. That's helped ease investor concerns about consumer spending, which accounts for two-thirds of all economic activity.

"The early focus was on the consumer and the weekend sales but of course subprime always seems to pop its head up," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc., referring to loans made to borrowers with poor credit. Some of these loans are now souring, forcing banks to write off huge sums.

According to preliminary calculations, the Dow fell 237.44, or 1.83 percent, to 12,743.44, closing near the lows of the session.

Broader stock indicators also gave up ground. The Standard & Poor's 500 index declined 33.49, or 2.32 percent, to 1,407.21, and the Nasdaq composite index fell 55.61, or 2.14 percent, to 2,540.99.

The declines extended the losses of last week, when the Dow lost 1.49 percent, the S&P slid 1.24 percent and the Nasdaq gave up 1.54 percent.

Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.85 percent from 4 percent late Friday.

With energy prices at the highest in decades, and economic uncertainty looming over the market, investors have been nervous that consumers could cut back during the holidays.

Energy prices fell. A barrel of light, sweet crude fell $1.13 to $97.05 on the New York Mercantile Exchange, after briefly crossing $99 overnight.

Gold prices rose, while the dollar fell against other major currencies, except for the yen.

Economic news was light Monday, with traders looking ahead to the readings on consumer confidence, existing home sales and orders for big-ticket goods due later in the week.

The Fed's decision to inject liquidity into the market isn't unusual for this time of year. Last year, the Fed added a net $21.9 billion into the system from the Monday following Thanksgiving until the first week of January.

Lee Adler, publisher of The Wall Street Examiner, said the overall level of recent liquidity injections is consistent with past years.

"I think it's a confidence game here," Adler said. "The markets are obviously having liquidity problems. The Fed wants people to think that they're doing something about it."

He noted that Monday's announcement differs from past practices in that the bank is making a formal statement of its policy. Ultimately, though, the Fed is still doing what it always does, he said.

Credit market concerns emerged anew overseas as well. HSBC said it would inject $35 billion into the two funds whose assets it is transferring to its balance sheet to prevent a liquidation of their assets.

Also in Europe, embattled mortgage lender Northern Rock PLC said Monday it will hold accelerated takeover negotiations with a consortium led by Virgin Group. Northern Rock ran into problems in September when the short-term credit on which it relied dried up as banks became more wary of lending, and the Bank of England stepped in as a lender of last resort.

Among financial stocks, Citigroup fell $1, or 3.2 percent, to $30.70, while Lehman Brothers Holdings Inc. fell $3.40, or 5.6 percent, to $57.46.

Weighing somewhat on the market's optimism, Citigroup reduced its outlook on several major homebuilders on Monday, saying a glut of inventory and coming resets of subprime mortgages will continue to weigh on the sector at least through the second quarter of 2008.

Homebuilder Lennar Corp. fell $1.09, or 7 percent, to $14.50, while KB Home fell $2.04, or 9.4 percent, to $19.65.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 1.5 billion shares.

The Russell 2000 index of smaller companies fell 19.96, or 2.64 percent, to 735.07.

Overseas, Britain's FTSE 100 fell 1.30 percent, Germany's DAX index lost 0.55 percent and France's CAC-40 dipped 1.14 percent. In Asia, Japan's Nikkei stock average closed up 1.66 percent, Hong Kong's Hang Seng index gained 4.09 percent.