Dow’s fall crosses correction threshold

NEW YORK » Wall Street sold off sharply yesterday as concerns about a weakening credit market wiped out investors' enthusiasm about strong retails sales over the holiday weekend.

The Dow Jones industrial average fell nearly 240 points.

The Dow's decline from its mid-October closing high is now 10.03 percent, putting the blue chip index past the 10 percent threshold that signifies a correction.

The swoon comes as investors were unnerved by another series of announce- ments that pointed to continuing problems in the credit markets, the result of home loan debt going bad under the weight of a faltering housing market.

Two banks had bad news: Citigroup Inc. warned it is looking to cut costs -- raising the possibility of further job cuts -- and HSBC Holdings PLC said it plans to bail out two funds it manages.

Meanwhile, the New York Federal Reserve, acknowledging "heightened pressures" in money markets that are expected to last through the rest of the year, said it plans to conduct a series of repurchase agreements aimed at boosting liquidity in the credit markets.

The announcement from the New York Fed, which carries out monetary policy set by the U.S. Federal Reserve, essentially puts in writing many of the steps the Fed often takes at this time of year.

The Fed said it would inject $8 billion into the banking system on tomorrow. The amount of money is somewhat larger than in past years at this time.

A better-than-expected report on retail sales wasn't able to hold the market's early gains. Retail sales on Friday and Saturday combined rose 7.2 percent to $16.4 billion from the same two-day period a year ago, according to ShopperTrak, which tracks total sales at more than 50,000 U.S. retail outlets.

That's helped ease investor concerns about consumer spending, which accounts for two-thirds of all economic activity.

"The early focus was on the consumer and the weekend sales but of course subprime always seems to pop its head up," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc., referring to loans made to borrowers with poor credit.

Some of these loans are now souring, forcing banks to write off huge sums.

The Dow fell 237.44, or 1.83 percent, to 12,743.44, closing near the lows of the session.

Broader stock indicators also gave up ground.

The Standard & Poor's 500 index declined 33.49, or 2.32 percent, to 1,407.21, and the Nasdaq composite index fell 55.61, or 2.14 percent, to 2,540.99.

The Russell 2000 index of smaller companies fell 19.96, or 2.64 percent, to 735.07.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 1.5 billion shares.

Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.85 percent from 4 percent late Friday.

Energy prices fell. A barrel of light, sweet crude fell $1.13 to $97.05 on the New York Mercantile Exchange, after briefly crossing $99 overnight.

Gold prices rose, while the dollar fell against other major currencies, except for the yen.