U.S. Stocks Fall Sharply on Rejection of Automakers' Plans

By Ylan Q. Mui

U.S. stocks plunged this morning on fears of potential bankruptcies in the auto industry and fresh concerns that saving the nation's banks will require substantially more money.

All three indexes were down nearly 4 percent shortly before noon, following President Obama's press conference outlining plans for the auto industry. The blue-chip Dow Jones industrial average was down 288 points to 7489, while the broader Standard & Poor's 500-stock index fell 30 points to 786. The tech-heavy Nasdaq composite index declined 54 points to 1491.

"The implications are that there may be more pain and suffering in the auto sector," said Fred Dickson, chief market strategist for D.A. Davidson & Co.

At the White House's request, General Motor's chief executive, Richard Wagoner, resigned. The company also must devise a leaner business plan that likely will cut the company workforce and product lines even more than officials had contemplated. It has 60 days to come up with a new approach. GM stock was down 20 percent, or 71 cents, to $2.91.

Chrysler, which the administration believes cannot survive as a stand-alone company, must reach an agreement to partner with the Italian automaker Fiat in the next 30 days to become eligible for as much as $6 billion in additional federal loans. The automaker is closely held, but shares of minority owner Daimler AG fell 9 percent, or $2.58, to 24.98.

The White House also indicated that some form of bankruptcy could be possible for the nation's largest automakers.

Shares of Ford, which is not participating in the bailout, were down 1.8 percent, or 5 cents, to $2.79.

In addition, U.S. Treasury Secretary Timothy F. Geithner said yesterday that banks might need even more government aid. Financial stocks were down close to 5 percent this morning, with Citigroup dropping 10 percent and Bank of America down nearly 13 percent. The sector had had a strong rally last week on news that the government would partner with private entities to help remove so-called toxic assets from banks' balance sheets.

The specter of bankruptcies in the U.S. auto industry coupled with renewed concern over the banks sent world markets into a tailspin this morning, particularly in Asia. Japan's Nikkei 225 plummeted 4.5 percent, or 391 points, to 8236. Hong Kong's Hang Seng Index dropped 4.7 percent, or 663 points, to 13,456.

The falloff comes after a three-week rally that lifted the market out of 12-year lows and sparked some hope among investors that the markets had reached their bottom.

"After three weeks of euphoria thinking that the worst might be over . . . that basically was a douse of cold water," Dickson said.

Staff writers William Branigin and Peter Whoriskey contributed to this report.