As Auto Bailout Hopes Fade, So Do Stocks

Stocks plunged for a second straight day Thursday, falling to a range not seen in more than five years as financial and energy stocks tumbled while demand for the safety of government debt spiked to historic levels.

Stocks saw the most intense selling late in the session after hopes faded that lawmakers would quickly put together an aid package for U.S. automakers and as the Standard & Poor's 500 index broke through lows established in 2002. That breach of a key technical threshold sent a shudder through the market and touched off further selling.

The Standard & Poor's 500 index fell 6.7 percent to the 752 level, below the closing low of 776.76 logged on Oct. 9, 2002. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow's two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.

Investors seemed unmoved by remarks from Treasury Secretary Henry Paulson who said in a speech Thursday that the financial crisis hitting the global economy was something likely to occur only "once or twice" in a 100 years. He cautioned against overreacting by implementing regulations that are too onerous.

Financial stocks plunged on worries that the government's financial rescue won't be sufficient to cover banks' losses. Meanwhile, a sharp drop in oil prices weighed heavily on energy companies.

Citigroup, which crumbled 26 percent Thursday, was one of the biggest losers, reports CBS News correspondent Anthony Mason. Even after a Saudi prince upped his stake in the financial giant, the stock fell below $5. The total value of Citigroup's outstanding shares is now almost equal to the $25 billion in bailout money the treasury just pumped into the bank.

"I think Citigroup, at these prices they are at now, is shocking to most people," Doreen Mogavero, CEO of Mogavero, Lee & Co., told Mason.

Thursday's pullback came amid heavy volume, a welcome sign for some investors who are looking for the market to experience a cathartic sell-off that could lay the groundwork for a recovery. Heavier volume can signal investors are scared enough to sell rather than simply sitting on the sidelines, which can result in relatively light volume.

Observers said, however, that the selling was just as much to do with entrenched pessimism about the prospects for many corners of the economy.

"Unrelenting gloom has taken over the markets," said Dana Johnson, chief economist at Comerica Inc. "The economic news, the concerns about some major financial institutions, the concerns about the auto sector, earnings reports, everything is coming out in a way that is just provoking a massive selling in the stock market."

"Back in October we were looking at a potential catastrophic meltdown of the credit markets, and that didn't happen," he said. "But that doesn't mean tremendous damage hasn't been done to the economy."

According to preliminary calculations, the Dow fell 444.99, or 5.56 percent, to 7,552.29. It was the Dow's biggest percentage drop since Oct. 22 and its lowest close since March 12, 2003.

Broader stock indicators also showed huge declines. The Standard & Poor's 500 index fell 54.14, or 6.71 percent, to 752.44. The Nasdaq composite index fell 70.30, or 5.07 percent, to 1,316.12.

The Russell 2000 index of smaller companies fell 27.07, or 6.56 percent, to 385.31.

Declining issues outnumbered advancers by about 10 to 1 on the New York Stock Exchange, where volume came to 2.23 billion shares.

Gus Scacco, managing director at AG Asset Management, said investors can't manage to regain confidence as the market continues to plumb new depths. Stocks fell to their lowest level in more than five years on Wednesday.

"We're trying to make a bottom but we keep breaking through," he said.

Jon Biele, head of capital markets at Cowen & Co., said investors are bracing for more bad news.

"The view on the floor is nobody is sure what the next stop is," he said. "I think the market is expecting another shoe to drop."

"Some people think this is the capitulation we've been waiting for," he said. "All along we've been hoping for a real violent sell-off and the end of the day today was a pretty dramatic move."

Bond prices showed stunning advances as investors clamored for the safety of government debt. The yield on the benchmark 10-year Treasury note fell to 3.14 percent from 3.32 percent late Wednesday. Bond yields move opposite their price. The yield on the three-month Treasury bill, considered one of the safest assets around, fell to 0.03 percent from 0.06 percent late Wednesday.

Light, sweet crude for December delivery fell 7 percent, or $4, to settle at $49.62 on the New York Mercantile Exchange.

Overseas, stock markets tumbled, with benchmarks in Tokyo and Seoul losing almost 7 percent each, after recession fears sent Wall Street plunging and Japan suffered its biggest drop in exports in seven years.

Japan's Nikkei stock average fell 6.9 percent, while Hong Kong's Hang Seng Index slid 4.04 percent. Britain's FTSE 100 fell 3.26 percent, Germany's DAX index fell 3.08 percent, and France's CAC-40 fell 3.48 percent.