Dow Falls Again

News at a Glance

• Too Little...: Stocks pare losses, but Dow drops 128.
• Crude Falls Again: Oil futures drop below $81 a barrel.
• GE Meets Forecast: Profit fell 22% in Q3, even as sales rose.
• Bush Speaks: Says selloff motivated by 'uncertainty and fear.'

The Lowdown

A late rally capped Wall Street's dismal week with a thrilling close but failed to keep the nation's benchmark index from another day in the red.

The major indexes finished mixed, offering traders one final surprise in a week full of superlative losses and dramatic intraday swings. The Dow Jones Industrial Average finished down just 128 points at 8451. It was a stunning turnaround for the index, which twice fell below 8000 during the session, but it came as little solace to traders who slumped into the weekend on one of the most bearish streaks in the market's history.

The broader indexes staged slightly more impressive recoveries. The Nasdaq reversed its losses to finish up 4 points at 1650, and the S&P 500 ended down 11 at 899.

Financials led the rebound. Citigroup (C), JPMorgan Chase (JPM) and Bank of America (BAC) each posted big gains as the clock ticked toward the close. Key downgrades held the sector's gains in check. Moody's lowered its outlook for Goldman Sachs (GS) and warned that Morgan Stanley (MS) could see its rating cut.

The rally also lifted techs and captial goods to about the break-even point.

Not every sector benefted. Energy stocks posted the large declines as oil prices plummeted. By 4:02 p.m., crude traded down $5.85 on the day at $80.74 a barrel. Materials and utilities also fell sharply.

Consumer-oriented stocks remained depressed after Macy's (M) lowered its same-store sales guidance and scaled back its earnings forecast. Anemic retail results earlier this week support the notion that the recession is now affecting the consumer.

For all of the late heroics, the week was one of the worst in Wall Street history, as traders pulled away from equities at breakneck speeds on concern over the credit crisis and the recession. The Dow dropped 18.2% during the week and extended its losing streak to eight consecutive losses. The S&P 500 also fell 18.2%, its largest single-week loss ever.

On Friday, equities began the day in a deep hole triggered by another selloff overseas. In Asia, Japan's Nikkei plummeted 9.6%. In Europe, the major indexes of London, Paris and Germany each finished down more than 7%.

The euro fell against the dollar, slipping to $1.3395, down sharply from the $1.3661 on Thursday.

In Washington, officials from the Group of Seven gathered to discuss a potential plan to guarantee loans between nations in an effort to restore some investor confidence and loosen the credit markets.

President Bush addressed the market's turmoil. In prepared remarks, he called the recent drop "startling," but said a portion of the losses had been "driven by uncertainty and fear." He added the the government "will continue to act to resolve this crisis and restore stability to our markets."

Corporate News

• General Electric (GE) reported a 22% drop in third-quarter net income, matching the firm's lowered guidance. The Dow component earned $4.31 billion, or 43 cents a share, down from $5.56 billion, or 54 cents a share, in the year-ago period. Revenue climbed 11.1%, but the firm's financial services units -- assets now on the block -- put pressure on its bottom line.
• Citigroup (C) abandoned its bid for Wachovia (WB) on concerns over the value of some of its assets, clearing the path for the firm to be acquired by Wells Fargo (WFC). The all-stock deal, which was first announced last Friday, is now worth $11.4 billion and is on schedule to be completed in the fourth quarter, Wells Fargo said.
• American International Group (AIG) has borrowed about $70.3 billion from the federal government, or 57% of the loans authorized to the firm, The Wall Street Journal reported. The insurance giant is now in a desperate rush to sell off its assets to pay for those loans, but the market's decline has kept buyers firmly in the woodwork.
• Morgan Stanley (MS) could see its rating cut by Moody's as the credit crisis takes its toll of the firm's top and bottom lines, Bloomberg reported, citing a statement from the ratings agency. "An extended downturn in global capital market activity will reduce Morgan Stanley's revenue and profit potential in 2009, and perhaps beyond this period," Moody's wrote. The warning came as Morgan closed in on a deal to raise $9 billion by selling a 20% stake in itself to Mitsubishi UFJ.
• Ford (F) and General Motors (GM) may be forced into bankruptcy, according to an Standard & Poor's analyst. The steep economic downturn could undermine the firms' turnaround efforts, as tight credit makes buying a car a more difficult prospect for consumers, Bloomberg reported.

The Economy

• The monthly trade gap narrowed to $59.1 billion in August, down from a revised July balance of $61.3 billion, the Commerce Department said. Economists had expected an August balance of $59.0 billion. REPORT

ReadMe

• Slate on who's to blame: European officials say the U.S. caused their share of the credit crisis. That is not entirely accurate. STORY
• CNN on the resurgence of coupons: Cutting along the dotted line is so hot right now. STORY
• The Wall Street Journal on the next Treasury Secretary: Here's a list of potential candidates, assuming Warren Buffett is off the table. STORY

WatchMe

• Bloomberg on investing: Lorraine Tan, head of equity research at Standard & Poor's, discusses what sectors she favors in the current climate. VIDEO
• CNBC on the recession portfolio: The shift from wealth acquisition to wealth preservation is likely to affect investment decisions. VIDEO
• ALCS Game 1: The Boston Red Sox take on the Tampa Bay Devil Rays in a contest whose winner moves a game closer to the World Series. TBS, 8:30 p.m.