US stocks fell this week, sending the Dow Jones Industrial Average to the biggest loss since 2008, as the Federal Reserve said risks to the economy have increased and concern grew that policy makers will fail to spur growth.
Equities rebounded on Friday, following a four-day rout that erased US$1.1 trillion in value, amid speculation that governments will act to prevent a financial crisis.
For the week, Alcoa Inc and DuPont Co tumbled more than 14 percent to lead losses in the Dow. Materials companies in the Standard & Poor’s 500 Index slipped 12 percent for the biggest drop among 10 industries as every group declined at least 1.6 percent. Bank of America Corp slumped 13 percent, while FedEx Corp tumbled 12 percent.
The S&P 500 dropped 6.5 percent to 1,136.43 this week, the most since the period that ended Aug. 5. The index retreated after posting the third-biggest weekly gain since 2009. The Dow dropped 737.61 points, or 6.4 percent, to 10,771.48.
“The likelihood of a recession in the US has clearly risen this week,” said Andrew Slimmon, the Chicago-based managing director of global investment solutions at Morgan Stanley Smith Barney LLC, which has about US$1.7 trillion in client assets. “Although the economic data is still inconclusive, the US equity market is focused on the impact of a global slowdown and we remain cautious.”
Stocks fell after the Federal Reserve said there are “significant downside risks” to the economy and investors speculated that central banks are running out of tools to prevent a recession. The MSCI All-Country World Index of shares in 45 nations extended its slump since May 2 to more than 20 percent this week, meeting the definition of a bear market. Benchmark measures for 32 out of 45 nations in the index have also reached that threshold. The S&P 500 must fall 4 percent to get there.
Stocks rose slightly on Friday as European governments sped up the creation of a permanent rescue fund. The European Central Bank may step up efforts to ease financial-market tensions, including offering banks 12-month loans. About US$3.5 trillion was erased from global equity values this week.
The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 11 percent as all 30 of its stocks retreated.
The Dow Jones Transportation Average, also considered a proxy for the economy, slumped 9.6 percent. Both gauges fell the most since March 2009.
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