Stocks fall as automaker plans are rejected

NEW YORK (AP) — Wall Street's big March rally was officially on hold after the White House rejected turnaround plans from General Motors Corp. and Chrysler and gave investors a reality check on the economy.

All the major indexes fell more than 3.5 percent, including the Dow Jones industrial average, which lost more than 280 points. Financial stocks weighed heavily on the market.

Fears of an automaker bankruptcy have been looming over investors for months, and the latest developments, which included the removal of GM's CEO Rick Wagoner, made the market even more uneasy not only about the industry, but the overall economy. However, analysts said the pullback, which began with a 148-point drop in the Dow Friday, wasn't surprising after the average surged 21 percent over just 13 days.

"The market had a very significant rally off the lows," said David Katz, chief investment officer at Matrix Asset Advisors. "We think it's just taking a breather."

The rally that began in early March was fed by economic and corporate reports that were starting to look more encouraging. Now, investors are taking money out of the market ahead of economic numbers this week and first-quarter earnings in the weeks ahead, fearing that disappointing data, including the government's March employment report on Friday, will set the market back.

The problems still facing automakers and banks gave investors more incentive to sell.

On Monday, President Barack Obama refused further long-term federal bailouts for GM and Chrysler, saying the companies needed to get more concessions from unions, creditors and others before the money could be approved. He also raised the possibility Monday of controlled bankruptcy for one or both of the companies.

Underscoring the fear that the financial industry's troubles are far from over, Treasury Secretary Timothy Geithner said Sunday during a television interview that banks would likely need considerably more money. Also over the weekend, Spain was forced to bail out a bank for the first time since the financial crisis began. The Bank of Spain took control of a small savings bank and provided $12 billion in government funds to support it.

Analysts had warned that the market's recent advance could well be what traders refer to as a "bear market rally," or a temporary upturn within a bear market, defined as a 20 percent decline from a peak level. Rallies within bear markets can ratchet up big gains but they also can easily come crashing down.

"Twenty percent is a normal bear market rally," said Ron Weiner, president and chief executive of Westport, Conn.-based investment advisory firm RDM Financial. "Testing bottoms is a long-term process."

With the economy still deeply troubled, some analysts say the market may have gotten ahead of itself.

"I think we had a huge run up ... that was not really justified," said Peter Jankovskis, co-chief investment officer at OakBrook investments. "There are a lot of negatives right now on the horizon."

In midafternoon trading, the Dow tumbled 282.12, or 3.6 percent, to 7,494.06. The Standard & Poor's 500 index fell 29.96, or 3.7 percent, to 785.98, while the Nasdaq composite index fell 48.01, or 3.1 percent, to 1,497.19.

The Russell 2000 index of smaller companies dropped 14.12, or 3.3 percent, to 414.88.

About 13 stocks fell for every two that rose on the New York Stock Exchange, where volume came to 758.6 million shares.

Banks largely led the market's recent rally, based on the hope that their first-quarter performance would be better than expected. So that sector will now likely see some of the biggest declines as investors move their money into more defensive areas.

"It's just prudent to take profits nowadays," said Weiner, who recently took half of his money out of a financial-based exchange-traded fund because of the recent gains. "You have to mix up cash with alternatives that act opposite from the market."

Among the banks that fell Monday, Bank of America Corp. dropped 91 cents, or 12.4 percent, to $6.43. Citigroup Inc. shed 26 cents, or 9.9 percent, to $2.36.

General Motors Corp. plunged 76 cents, or 21 percent, to $2.86. Chrysler is not publicly traded.

Investors will also be focusing on Thursday's meeting in London of G-20 leaders of industrialized and developing countries. The group is expected to increase financial regulation, but investors' hopes for a coordinated fiscal boost are waning. The Financial Times, citing a draft of the meeting's communique, reported that there are no specific plans for a fiscal stimulus package.

Bond prices were mostly higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.70 percent from 2.76 percent late Friday. The yield on the three-month T-bill was unchanged from late Friday at 0.12 percent.

Crude oil fell $2.81 to $49.57 a barrel on the New York Mercantile Exchange.

The dollar was higher against other major currencies. Gold prices slipped.

Overseas, Japan's Nikkei stock average fell 4.53 percent. In afternoon trading, Britain's FTSE 100 fell 3.1 percent, Germany's DAX index fell 5 percent, and France's CAC-40 fell 4.3 percent.

___

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Copyright 2009 The Associated Press.