Dow Falls 508 Points

News at a Glance

• Losses Mount: Selloff continues as Dow drops 508.
• Bernanke Speaks: Says turmoil may persist.
• Rate Cut Possible: Fed minutes drop hint of a decrease.
• BofA Jumps Gun, Fires Blank: Q3 is a letdown.

The Lowdown

Weak earnings and a grim outlook for the economy sent stock reeling and extended a broad selloff to its fifth straight session.

Stocks finished sharply Monday after a gloomy prognosis from the Federal Reserve and an earnings letdown from one of the big banks still standing. The Dow Jones Industrial Average recorded its fourth consecutive triple-digit loss, falling 508 points to 9447. The Dow has lost more than 15% of its value in the last seven sessions.

The broader indexes also took a beating. The Nasdaq gave up 108 points to end the day at 1755, and the S&P 500 had gave back 61 to finish at 996, its lowest close since September 2003.

The financial sector lost the most ground and was the heaviest weight on the major indexes. Bank of America (BAC) released disappointing third-quarter earnings a week early. The firm said its net income fell 68% below that of the year-ago period.

However, the heaviest selling came after Fed Chariman Ben Bernanke warned that the market may turn more bearish before it improves. He cited tight credit conditions as a hurdle to personal spending and business growth.

"All told, economic activity is likely to be subdued during the remainder of this year and into next year," he said in prepared remarks for the annual meeting of the National Association for Business Economics. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth."

The Fed's latest report on consumer credit showed a $7.9 billion decline in consumer borrowing in July.

The minutes of the September Fed meeting released today also portrayed weakening economic conditions. "Participants agreed that economic growth was likely to be sluggish in the second half of 2008," The Federal Open Market Committee wrote in its minutes from last month. "Several participants had marked down their near-term outlook for economic activity and some judged that downside risks had increased, but most continued to expect a gradual recovery in 2009." The Fed also said it may move to lower interest rates if conditions worsened. The Fed's next meeting begins October 28.

Separately, the Fed moved to help keep the nation's companies functioning smoothly when it announced it would begin buying up commercial paper -- three-month loans that facilitate firms' day-to-day operations -- inside and outside the financial sector. The Fed's decision came as the market for such debt had all but disappeared. "This facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said in a statement.

The Fed also released its fourth-quarter schedule for auctions to help keep the nation's banks afloat.

Those who do not work at the Fed appear to be more concerned about growth than inflation. Almost six out of ten Americans consider the odds of a depression "very likely" or "somewhat likely," according to the results of a new poll released by CNN/Opinion Research.

Commodities prices remain in flux. By 4:09 p.m., crude oil had rebounded from yesterday's fall to trade up $1.90 on the day at $89.71 a barrel.

Overseas, markets remained mixed and volatile, amid doubts of a successful rescue of the U.S. financial sector. In Asia, Japan's Nikkei continued its steep fall, dropping an additional 3.0%. Hong Kong's blue-chip Hang Seng lost 5.0%. In Europe, the FTSE gained 0.4%.

Corporate News

• Bank of America (BAC) posted a disappointing 68% drop in third-quarter net income when the firm released earnings a week early. BofA earned $1.18 billion, or 15 cents a share, down from $3.7 billion, or 82 cents a share, in the year-ago period. The firm also lowered its dividend to 32 cents a share, down from 64 cents a share, and said it aimed to raise $10 billion in new capital through a stock sale. Chairman and chief executive Kenneth D. Lewis called the environment "the most difficult times for financial institutions that I have experienced in my 39 years in banking."
• Citigroup (C) and Wells Fargo (WFC) agreed to put their legal battle on hold until Wednesday as they work with federal officials to broker a deal for Wachovia (WAC). The firms had been engaged in a fight for the bank's assets, culminating in a $60 billion lawsuit brought by Citi against the other two firms.
• Advanced Micro Devices (AMD) plans to spin off its manufacturing operations to form a new joint venture to make chips, the firm said. The new company, Foundry, will be funded largely by Advanced Technology Investment, an Abu Dhabi-based firm which has agreed to provide the company with up to $6 billion.

The Economy

• The minutes of the September 16 meeting of the Federal Open Market Committee portrayed economic conditions as hampered significantly by tighter credit. The Fed hinted at a potential rate cut if the outlook for growth dims. The Fed's next policy statement is due out on October 29 at the conclusion of a two-day meeting. MINUTES
• Consumer credit fell by $7.9 in August, down from a revised gain of $5.2 billion in July, the Federal Reserve said. Economists had expected borrowing to have risen by $5.0 billion. REPORT

ReadMe

• Forbes on the bailout: What progress has been made in the financial rescue approved last week by Congress and the president? STORY
• Slate on financiers: In 1907, J.P. Morgan saved the economy more or less on his own. Are his shoes fillable in 2008? STORY
• BusinessWeek on the auto industry: Can Ford (F) and General Motors (GM) weather the credit crisis long enough to execute their turnaround plans? STORY

WatchMe

• Reuters on Wachovia: The agreement between Citigroup and Wells Fargo could stabilize share prices for time being. VIDEO
• CNBC on the yen: Differences in monetary policy have left Japan's currency in a stronger position. VIDEO
• Coverage of the second presidential debate: Sens. Barack Obama (D-Ill.) and John McCain (R-Ariz.) square off in a town-hall-style debate moderated by Tom Brokaw at Belmont University in Nashville, Tenn. ABC, CBS, CNBC, CNN, CSPAN, FNC, FOX, MSNBC, NBC, PBS, WWOR, 8 p.m.