Dow suffers worst week in over 4 years

Credit markets worries again roil stocks, while higher oil prices add to investor fears, sending Dow down 200 points.

By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- A rough and tumble trading session sent the Dow industrials plummeting for the second straight session Friday, with the 30-stock index falling more than 200 points, marking its worst week in over 4 years.

The Dow Jones industrial average (down 208.10 to 13,265.47, Charts) plunged 208 points, or 1.5 percent, leaving the 30-stock index up 6.4 percent for the year.

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This week's sharp sell-off, which was the biggest percentage drop for the Dow since March 2003, comes just days after the blue chip barometer finished above 14,000 for the first time ever.

The broader S&P 500 (down 23.71 to 1,458.95, Charts) lost 1.6 percent while the tech-fueled Nasdaq composite index (down 37.10 to 2,562.24, Charts) slipped 1.4 percent.

Credit market fears, which sparked Thursday's 311 point drop and a 262 point selloff on Tuesday, once again wreaked havoc on investors nerves, while a surge in oil prices helped pressure stocks.

"There's been no fundamental problem, other than people are worried about the corporate bond market," said Tony Dwyer, equity market strategist at FTN Midwest Research. "This is one of those cases where fear is worse than reality."

Fanning those fears was an announcement by Cadbury Schweppes (up $0.30 to $48.74, Charts) that it decided to delay the sale of its North American beverage unit, which produces Dr. Pepper and Snapple, citing recent turmoil in the debt market.

Investors around the world have been rattled by signs of tougher conditions in credit markets, since tighter credit could raise the cost of borrowing for companies, hurting corporate earnings. This is likely to slow the buyout boom, which has helped prop up stock prices.

Shares of the private equity firm Blackstone Group (down $1.40 to $24.30, Charts), which went public late last month, fell more than 5 percent in Friday trade on the New York Stock Exchange on those fears.

Wall Street found some comfort in a better-than expected second quarter GDP reading and comments by Treasury Secretary Henry Paulson that the the U.S. economy is the strongest he has seen in several decades, helped by growth outside the U.S.

Corporate earnings, which have been a catalyst for the market recently, were fairly sparse Friday with only a handful of companies reporting results, including oil giant Chevron (down $2.26 to $85.20, Charts, Fortune 500) which reported improved quarterly earnings.

Gap Inc. (up $0.88 to $17.79, Charts, Fortune 500) was one of the few advancers Friday, with its shares climbing 5 percent on news that the apparel maker named Glenn Murphy as the company's new CEO.

Shares of the spinal-products maker Kyphon Inc. (up $12.92 to $66.60, Charts) soared 24 percent higher after fellow devicemaker Medtronic (down $0.11 to $50.81, Charts, Fortune 500) said it agreed to buy the company for $3.9 billion.

Market breadth was negative as losers beat winners by more than 2 to 1 on the New York Stock Exchange on volume of 2.27 billion shares. Decliners topped advancers on the Nasdaq by the same ratio on volume of 2.75 billion shares.

Treasury bonds kept climbing after a big run-up in the previous session, as investors again sought shelter from falling stock prices. The 10-year note yield rose to 4.76 percent, down from 4.78 in the previous session. Bond prices and yields move in opposite directions.

The dollar gained versus the euro and was lower against the yen. COMEX gold for December fell $2.80 to $672.30 an ounce.

Despite the big downturn in stocks this week, some market observers remained confident that stocks should see some sort of a bounce next week.

Investors may find some positive news in any of the companies set to rep rot next week including General Motors (Charts, Fortune 500), Dow component Verizon (Charts, Fortune 500) or any of the economic readings due out, including the July jobs report due out on Friday.

"So far we have no reason to believe this is anything more than a normal pullback in a midcycle bull market slowdown," said Doug Sandler, chief equity strategist at Wachovia Securities.

"I think all you really need is some green on the screen and people will want to jump in."  Top of page