Wall Street stocks tumbled today, with the blue-chip Dow index down more than two per cent, after US President Barack Obama unveiled plans to limit the size and scope of US banks and finance firms.
The Dow Jones Industrial Average slumped 213.27 points (2.01 per cent) to 10,389.99, posting its biggest drop for the year and extending losses after a big fall on Wednesday.
The Nasdaq composite tumbled 25.55 points (1.12 per cent) to 2,265.70 and the Standard & Poor's 500 index dropped 21.56 points (1.89 per cent) to 1,116.48. The market was dragged down mainly by concerns over Obama's new plans to limit the size and scope of US banks and finance firms.
They brought "the bears out in force," said Schaeffer's Investment Research analyst Elizabeth Harrow.
"With traders anticipating a return to Glass-Steagall style regulation, weakness in major financial firms dragged the market to drastic losses," she said, citing a Depression-era law creating a wall between investment and commercial banks.
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Top Obama economic aide Austan Goolsbee moved to reject the fears, saying, "It's not returning to Glass-Steagall," repealed in 1999.
Obama's plans are to limit "excessive" risk taking and "protect" taxpayers, aimed at preventing banks or finance institutions from owning, investing in or sponsoring hedge fund or private equity funds.
They will effectively force finance firms to choose between proprietary activities, trading in stocks and sometimes risky financial instruments and commercial activities, like making loans and collecting deposits.
The initiative, which must be approved by Congress, also proposed to place broader limits on "excessive growth of the market share of liabilities" at the largest financial firms.
The Obama administration's proposal "is inconsistent with achieving" goals, such as promoting responsible lending, increasing jobs and promoting a stronger economy, said Steve Bartlett, president for the Financial Services Roundtable, a group of 100 top financial services firms.
Persistent worries over moves to clamp down lending in China, the global economic growth driver, also troubled investors, analysts said.
"Concern also grew that China might hike interest rates to cool its economy.
This followed a report that gross domestic product in China grew last quarter at the fastest pace since 2007," said Wells Fargo Advisors chief market strategist Al Goldman.
Banking stocks hammered down were Bank of America, down 6.19 per cent to 15.47 US dollars and JPMorgan Chase, by 6.59 per cent to $US40.54.
Goldman Sachs shed 4.12 per cent to 160.87 dollars even after reporting net profit of 4.787 billion dollars in the fourth quarter of 2009 and a full year profit of 12.192 billion dollars, a sixfold increase from 2008. Morgan Stanley slipped 4.21 per cent to 29.34 dollars.
Aluminum producer Alcoa fell 6.43 per cent to 14.25 dollars and construction equipment-making giant Caterpillar was down 4.87 per cent to 56.85 dollars.
The bond market rose amid the investor caution. The yield on the 10-year Treasury bond fell to 3.611 per cent from 3.659 per cent Wednesday while that on the 30-year bond slipped to 4.06 per cent from 4.543 per cent.
