Dow plunges 362 points on credit fears

NEW YORK (CNNMoney.com) -- What a difference a day makes.

The Dow industrials, a day after rallying on an interest rate cut by the Federal Reserve, suffered one of its biggest declines of the year on Thursday after a Citigroup downgrade reminded Wall Street that the crisis plaguing the credit markets is lingering.

Widely Held Losers

• Citigroup (C): - 6.8%

• Alcatel-Lucent (ALU): - 6.7%

• ExxonMobil (XOM): - 3.8%

• AT&T(T): - 3.2%

• Verizon (VZ): - 2.9%

• Nov. 1, 2007

The Dow Jones industrial average (Charts) finished 362 points, or 2.6 percent, lower, marking its biggest loss since Oct. 19 and the fourth-biggest point decline of the year.

The broader S&P 500 index (Charts) lost 2.6 percent, while the tech-fueled Nasdaq lost nearly 2.3 percent.

The spark that sent major indexes lower was news that an analyst had downgraded banking giant Citigroup.

Citigroup (Charts, Fortune 500) shares, which finished 7 percent lower, tumbled after a CIBC World Markets analyst lowered the rating of the company's stock and warned that Citigroup may have to cut its dividend in order to raise $30 billion in capital. Citigroup declined to comment on the matter.

Citi's stock fell 6.9 percent in afternoon trade to its lowest level in 4-1/2 years, fueling fears that other major financial players were harder hit by this summer's subprime crisis than originally anticipated.

Some investors worry that because the value of many of these toxic mortgage-backed securities has not been determined, firms like Citi may have to take additional losses.

"It's continued concern about subprime and the pricing of these securities," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.

"Even though they took writedowns, I think there's a lot still sitting on their books and a general concern that they may have to see further reductions."

Adding to the negative sentiment was Credit Suisse (Charts), which reported a 31 percent drop in profits Thursday - hurt by the U.S. housing market and weakened demand for buyout loans.

Also pressuring stock were disappointing results from oil major Exxon Mobil (Charts, Fortune 500), which reported a bigger-than-expected drop in quarterly earnings. Its shares fell by 4 percent.

In related news, oil prices eased after hitting a new record high of $96.24 a barrel earlier in the day. Light, sweet crude for December settled 42 cents lower to $93.07 a barrel in afternoon trade on the New York Mercantile Exchange.

Stocks surged just a day earlier after the Federal Reserve delivered the quarter percentage point rate cut that Wall Street was hoping for and lowered its key lending rate to 4.5 percent.

But with the Fed decision behind them, investors shifted their attention to a host of economic reports delivered Thursday.

The government reported that personal income and spending by individuals rose less than expected in September, while personal income rose in line with expectations.

The report also included a key inflation measure known as the core PCE deflator, which measures prices paid by consumers for items other than food and energy. It showed a 1.8 percent increase - right within the Fed's comfort level.

Manufacturing in the United States grew less than expected during the month of October, the Institute for Supply Management reported. The report suggests that woes in the housing market could be spreading to the broader economy.

And initial jobs claims came in at 327,000, a bit less than forecasts and the previous week's reading.

But the biggest economic reading for the week still lies ahead for investors. Due out before the opening bell Friday is the monthly employment report for October.

Both economists and Wall Street will be closely watching for signs whether this summer's mortgage crisis has spilled over to the broader economy.

In other corporate news, Sprint Nextel (Charts, Fortune 500) reported a steep drop in profits Thursday, hurt by its wireless business.

Shares of footwear-maker Crocs (Charts) tumbled 36 percent after it forecast late Wednesday that its 2007 sales would miss Wall Street expectations.

Ford Motor (Charts, Fortune 500) was the first to report October sales Thursday, reporting a 9.5 percent decline. Sales at crosstown rival General Motors (Charts, Fortune 500) improved during the month, outpacing gains at Japanese rival Toyota Motor (Charts).

Market breadth was negative. Losers beat winners by nearly 7 to 1 on the New York Stock Exchange on volume of 1.74 billion shares. Decliners topped advancers by nearly 5 to 1 on the Nasdaq as 2.58 billion shares traded hands.

Treasury prices gained, lowering the yield on the benchmark 10-year note to 4.35 percent from 4.47 percent a session earlier. Prices and yields move in opposite directions.

The dollar, which hit yet another record low against the euro Wednesday after the Fed rate cut, recovered slightly on the European currency but was lower versus the yen.

Gold prices, which Wednesday topped $800 for the second straight session, retreated $1.60 to $793.70 an ounce.