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MENDRISIO, Switzerland
HERE, in a corner of Switzerland where Italian is spoken and roughly one-third of the world’s gold is refined into bars and ingots, business is booming. Every day, bangles, bracelets and necklaces arrive in plastic bags — from souks in the Middle East, from pawn shops in Asia and from corner jewelers in Europe and North America.
“It could be your grandmother’s gold or the gift of an ex-boyfriend,” said Erhard Oberli, the chief executive of Argor-Heraeus, a major refiner here that processes roughly 400 tons of gold a year. “Gold doesn’t disappear.”
Amid a global frenzy fed by multibillion-dollar hedge funds, wealthy speculators and governments all rushing to stock up on the precious yellow metal, the price of gold briefly surpassed $1,100 an ounce on Friday, a record high.
Long considered the ultimate refuge for nervous investors, gold has climbed as the dollar has steadily weakened, budget deficits have expanded in the United States and Europe, and central banks have continued to pump trillions of dollars into weak economies, creating fears of another asset bubble that will ultimately pop.
“It’s not that gold has changed, but gold buyers have changed,” said Suki Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural shift we’re seeing on the investing side, from Asian central banks right down to individual investors buying ingots and coins.”
“Gold’s appeal has broadened,” added Ms. Cooper, who predicts that it will hit $1,140 an ounce by the second quarter of next year.
Indeed, last month, Harrods, the 160-year-old London department store, began selling coins as well as gold bullion ranging from tiny 1-gram ingots to the hefty, 12.5-kilogram, 400-Troy-ounce bricks that are so often featured in movies and stocked inside the vaults of Fort Knox. Harrods’s lower ground floor, where the gold is peddled, has been packed with interested shoppers.
“The response has been astounding,” said Chris Hall, head of Harrods Gold Bullion. “Bars are definitely more popular than coins. The 100-gram is the most popular.”
IN the United States, ads promising high prices for gold are regular fodder for late-night television spots, while buyers are setting up tables at shopping malls or hosting gold-buying gatherings at private homes — like recession-era Tupperware parties.
“Everyone and their grandmother has a sign out saying, ‘We buy gold,’ ” said Ron Lieberman, the owner of Palisade Jewelers in Englewood, N.J. He estimates that 10 times as many people come into his store to sell gold now as when the metal was selling for $300 an ounce at the beginning of the decade. “I hear people come in and say gold is going to $2,000.”
Jewelry store shoppers aren’t the only ones forecasting lofty prices. Jim Rogers, an investor who has made his name investing overseas and in commodities, predicted to Bloomberg Television last week that gold might reach $2,000 an ounce — prompting a rebuke from Nouriel Roubini, an economist who gained attention for his early warnings about the global economic crisis. At a conference in New York on Wednesday, Mr. Roubini described Mr. Rogers’s forecast as “utter nonsense,” saying that there aren’t any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce.
Even the most bullish of gold lovers were surprised last week when the Reserve Bank of India stepped in and bought 220 tons of gold from the International Monetary Fund for $6.7 billion, a sign that other central banks might move away from dollar-denominated assets like Treasury bonds in favor of the precious metal. India’s huge purchase means that gold will now account for about 6 percent of India’s $285.5 billion of foreign exchange reserves — up from the previous level of about 4 percent.
“We have money to buy gold,” said Pranab Mukherjee, India’s finance minister. “We have enough foreign exchange reserves.”
On Thursday, Sri Lanka’s central bank disclosed that it, too, was buying gold, in a trend that could hurt the United States over time because it needs foreign bond buyers, especially central banks, to finance its growing debt. Gold closed at $1,095.10 an ounce on Friday, down from its intraday high but up nearly 5 percent for the week.
Adjusting for inflation, gold would have to top $1,885 to set an all-time record.
China has already doubled its gold reserves over the last six years, but the Indian move underscored how even the most traditional investors are shifting a portion of their assets into bullion.
“I have never been a gold bug,” Paul Tudor Jones, the prominent hedge fund manager, told his investors last month. “It is just an asset that, like everything else in life, has its time and place. And now is that time.”
Over all, in the second quarter of 2009, consumption of gold for jewelry plunged 20 percent, while investor demand for gold increased 51 percent, according to the World Gold Council.
THE Harrods gold line is made by PAMP, a rival Swiss refiner down the road here from Argor-Heraeus, in the nearby town of Castel San Pietro. And demand for bars weighing 100 ounces or less for individual investors is up 80 percent, said Marwan Shakarchi, the chairman of MKS Finance, a Geneva company that owns PAMP.
Inflows of old gold jewelry and individual investor sales are especially strong in the United States and Western Europe, a new phenomenon for MKS, Mr. Shakarchi said. In the past, hoarding gold as an investment was much more popular in the Middle East and Asia. “Europe and the United States are our emerging markets,” Mr. Shakarchi said.
In addition to high anxiety about the future, recent political trends may also be playing a part in the global gold fever. With a crackdown on tax havens worldwide and Swiss bankers handing over the names of wealthy American clients to authorities, some experts say rich people now prefer an investment that can easily be hidden from the prying eyes of tax collectors.
“In Europe, people want physical gold to store themselves, with no documents,” said Bernhard Schnellmann, director for precious-metal services at Argor-Heraeus. Often, the company doesn’t know the ultimate destination of the bars it makes, only the identity of the bank in Zurich or London that is handling the order.
The region surrounding Mendrisio has dominated gold refining for decades, profiting from its close proximity to northern Italy — which has a long tradition of jewelry-making and cheap labor — as well as from Switzerland’s own reputation for financial stability and discretion. The Swiss government has also nurtured the business, guaranteeing gold assays for purity and carefully regulating the industry.
One of the 100-gram bars that is produced here just about fits in the palm of your hand, with a satisfying metallic coldness that belies its $3,500 price tag. The standard 12.5-kilo, 400-ounce brick, on the other hand, is a monster, straining the wrist as well as the imagination: just one of these thick bars commands a higher price than a studio apartment in Manhattan.
Although India is now a far bigger consumer than Italy of gold for jewelry, the region around here has retained its distinctive status as the gold workshop of the world, with ore arriving from South Africa along with the old bracelets and necklaces destined for the crucible.
“If you give somebody a ton of gold, you don’t have to worry about it in Switzerland,” said Mr. Oberli, the Argor-Heraeus chief executive. Efficiency, another Swiss virtue, and speed are of the essence in the gold business, because prices change quickly and buyer and seller want to lock in their order quickly, Mr. Oberli explained.
“Everything that comes in has to go out,” he said. “It’s not our material.”
Perhaps as a result, the gold-refining fraternity is secretive, with verbal discretion as much a part of the culture as the high concrete walls that surround Argor-Heraeus and the metal detectors workers pass through when they go home for the day.
“Everybody is afraid someone else is chasing their customers,” said Mr. Oberli. “The banks don’t want us to know.”
Mr. Oberli is wary of walk-in clients and accepts orders from mines only when he can vouch for the origin of the ore, fearing “conflict gold” from rebel-held areas in Africa and elsewhere.
ARGOR-HERAEUS makes sure that even the tiniest amount of the precious metal doesn’t disappear during refining. Gold dust from the soles of workers’ and visitors’ shoes is scooped up on special mats when they leave. And, annually, the overalls that employees wear during manufacturing are burned to recover the smallest fleck.
At the airport in Zurich, where there are special vaults to hold gold, shipments of jewelry arrive daily on early morning flights before making their way here via a twisty, three-hour journey through the mountains on tightly guarded trucks. After the jewelry is unloaded, gold ingots, bars and other forms of bullion — already stacked like cordwood along the sooty corridors of Argor-Heraeus — are sent back to Zurich in the same trucks.
“The truck never drives back empty,” said Mr. Oberli. “Time is so important because the value of the material is so high.”
Mr. Oberli is also confident that he is running a business that, even in the middle of one of the worst economic downturns of the last century, is relatively recession-proof and always of interest to investors.
“Gold has been around as an investment for 6,000 years,” Mr. Oberli said. “When there is no alternative, it’s there.”
http://www.nytimes.com/2009/11/08/business/global/08gold.html
Sunday, November 8, 2009
Wednesday, November 4, 2009
Gold price hits record after IMF's India deal
The price of gold surged to a record peak of 1,095.80 dollars an ounce in trading here on Wednesday in the wake of the International Monetary Fund's massive sale of the precious metal to India.
Gold had already reached a record high of 1,087.80 dollars on Tuesday as the IMF said it had sold 200 tonnes of gold to India's central bank over a two-week period last month for 6.7 billion dollars to bolster its finances.
"Gold prices continue to march further into uncharted territory following the IMF's gold sale to the Reserve Bank of India," said Barclays Capital analyst Suki Cooper.
After spiking to a new high at 1545 GMT on Wednesday, gold later pulled back to 1,090 dollars in London.
"Gold is still benefiting from news that, at the end of October, India bought 200 tonnes of gold from the IMF at market prices," said Commerzbank analysts.
"This transaction is an indication that, despite the prevailing high price level, central banks from emerging economies are still willing to accumulate gold to diversify their currency reserves," they added in a note to clients.
Gold and other commodity prices have surged in recent months amid a move away from the dollar, which has been slumping. The move accelerated last month on a report that Gulf states may stop using the greenback for oil trading.
The metal is also winning support from fears over a possible spike in inflation, as gold is widely regarded by investors as a safe store of value.
Bart Melek at BMO Capital Markets said the big sale of gold to India gives credence to the theory "that there are official buyers waiting in the wings for large amounts of available gold.
"The question now is, who buys the rest of the IMF gold?" said Melek.
"We suspect it may be China, other Asian countries, Russia or even India again, as they hold relatively little gold relative to their very large foreign exchange reserves, and may want to diversify away from US dollars."
The sale to India was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years.
The Washington-based IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal after the United States and Germany.
India is the world's biggest consumer of gold, importing between 700 and 800 tonnes of the metal every year or 20 percent of global demand.
A senior IMF official said that the IMF was "lucky" in selling the 200 tonnes to India for roughly 1,045 dollars an ounce, compared with 850 dollars an ounce in April 2008.
Gold's price, which has risen more than 20 percent this year, has a bright future thanks to improving demand caused by the financial crisis, industry experts said this week.
"Although it's difficult to predict in the short term, the overall picture is very healthy," Mark Lynam, an executive for AngloGold Ashanti -- the world's third largest gold producer -- told the London Bullion Market Association annual conference in Edinburgh.
Plush London department store Harrods last month surprised the retail industry by starting to sell gold bars, with prices fluctuating according to the current market price.
Read it here
Gold had already reached a record high of 1,087.80 dollars on Tuesday as the IMF said it had sold 200 tonnes of gold to India's central bank over a two-week period last month for 6.7 billion dollars to bolster its finances.
"Gold prices continue to march further into uncharted territory following the IMF's gold sale to the Reserve Bank of India," said Barclays Capital analyst Suki Cooper.
After spiking to a new high at 1545 GMT on Wednesday, gold later pulled back to 1,090 dollars in London.
"Gold is still benefiting from news that, at the end of October, India bought 200 tonnes of gold from the IMF at market prices," said Commerzbank analysts.
"This transaction is an indication that, despite the prevailing high price level, central banks from emerging economies are still willing to accumulate gold to diversify their currency reserves," they added in a note to clients.
Gold and other commodity prices have surged in recent months amid a move away from the dollar, which has been slumping. The move accelerated last month on a report that Gulf states may stop using the greenback for oil trading.
The metal is also winning support from fears over a possible spike in inflation, as gold is widely regarded by investors as a safe store of value.
Bart Melek at BMO Capital Markets said the big sale of gold to India gives credence to the theory "that there are official buyers waiting in the wings for large amounts of available gold.
"The question now is, who buys the rest of the IMF gold?" said Melek.
"We suspect it may be China, other Asian countries, Russia or even India again, as they hold relatively little gold relative to their very large foreign exchange reserves, and may want to diversify away from US dollars."
The sale to India was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years.
The Washington-based IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal after the United States and Germany.
India is the world's biggest consumer of gold, importing between 700 and 800 tonnes of the metal every year or 20 percent of global demand.
A senior IMF official said that the IMF was "lucky" in selling the 200 tonnes to India for roughly 1,045 dollars an ounce, compared with 850 dollars an ounce in April 2008.
Gold's price, which has risen more than 20 percent this year, has a bright future thanks to improving demand caused by the financial crisis, industry experts said this week.
"Although it's difficult to predict in the short term, the overall picture is very healthy," Mark Lynam, an executive for AngloGold Ashanti -- the world's third largest gold producer -- told the London Bullion Market Association annual conference in Edinburgh.
Plush London department store Harrods last month surprised the retail industry by starting to sell gold bars, with prices fluctuating according to the current market price.
Read it here
Wednesday, October 21, 2009
US gold futures rise as dollar drops
U.S. gold futures rose in quiet trade on Monday as a weaker dollar boosted bullion's
appeal as an alternative currency against a steadily falling greenback.
For the latest detailed report, click on [GOL/].
GOLD
* December gold futures GCZ9 up $1.90 at $1,053.40 an
ounce at 10:35 a.m. EDT (1435 GMT) in COMEX trade.
* Range from $1,048.60 to $1,057.80. December scaled a
record high $1,072 on Oct. 14.
* Dollar remains near recent lows on expectations that U.S.
interest rates will stay near zero.
* Gold's recent movements largely led by currency markets
rather than inflation.
* Any news to weaken dollar's reserve currency status would
be positive for gold - HSBC.
* Gold rise boosted by oil, which climbed above $79 per
barrel.
* Gold-to-oil ratio below 14 at 13.35, down tad from
previous session's 13.40.
* Pullback possible as noncommercial net longs hit record
high in week up to Oct. 13 - CFTC data.
* COMEX estimated 10 a.m. volume at 37,556 lots.
* Spot gold XAU= at $1,053.40 an ounce, against $1,050.80
late in New York in the previous session.
* London afternoon gold fix XAUFIX= $1,050.50.
Gold Futures
appeal as an alternative currency against a steadily falling greenback.
For the latest detailed report, click on [GOL/].
GOLD
* December gold futures GCZ9 up $1.90 at $1,053.40 an
ounce at 10:35 a.m. EDT (1435 GMT) in COMEX trade.
* Range from $1,048.60 to $1,057.80. December scaled a
record high $1,072 on Oct. 14.
* Dollar remains near recent lows on expectations that U.S.
interest rates will stay near zero.
* Gold's recent movements largely led by currency markets
rather than inflation.
* Any news to weaken dollar's reserve currency status would
be positive for gold - HSBC.
* Gold rise boosted by oil, which climbed above $79 per
barrel.
* Gold-to-oil ratio below 14 at 13.35, down tad from
previous session's 13.40.
* Pullback possible as noncommercial net longs hit record
high in week up to Oct. 13 - CFTC data.
* COMEX estimated 10 a.m. volume at 37,556 lots.
* Spot gold XAU= at $1,053.40 an ounce, against $1,050.80
late in New York in the previous session.
* London afternoon gold fix XAUFIX= $1,050.50.
Gold Futures
Friday, October 2, 2009
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http://www.fundednfree.com/earnmoney.html
Tuesday, August 18, 2009
US gold bounces, ends higher on dollar-hedge buying
U.S. gold futures ended higher on Tuesday, rebounding from the previous session's sell-off based on doubts about economic recovery, and the strength of the dollar could set the tone for bullion in the near term.
GOLD
* December gold GCZ9 settled up $3.40 at $939.20 an ounce on the COMEX division of the New York Mercantile Exchange.
* Trading in a tight $6 range from $935 to $941.60.
* Gold rose amid a mixed bag of news as the dollar weakened and the U.S. producer price index fell more than expected in
July - Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management.
* The dollar is still the primary world currency, and the gold market's near-term direction could depend on its
interactions with the currency market and the overall economic sentiment - Perez-Santalla.
* The inverse relationship between gold and the dollar has been reasserting itself. Earlier this year, the traditional
link broke down because both assets benefited from a flight to safety amid economic fears - analysts.
* COMEX estimated final gold volume at 49,512 lots.
* Spot gold XAU= at $938.15 an ounce at 3:20 p.m. EDT (1920 GMT), against $932.80 in late Monday dealings in New
York.
* London afternoon gold fix XAUFIX= at $935 an ounce.
http://www.reuters.com/article/usDollarRpt/idUSN1843489020090818
GOLD
* December gold GCZ9 settled up $3.40 at $939.20 an ounce on the COMEX division of the New York Mercantile Exchange.
* Trading in a tight $6 range from $935 to $941.60.
* Gold rose amid a mixed bag of news as the dollar weakened and the U.S. producer price index fell more than expected in
July - Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management.
* The dollar is still the primary world currency, and the gold market's near-term direction could depend on its
interactions with the currency market and the overall economic sentiment - Perez-Santalla.
* The inverse relationship between gold and the dollar has been reasserting itself. Earlier this year, the traditional
link broke down because both assets benefited from a flight to safety amid economic fears - analysts.
* COMEX estimated final gold volume at 49,512 lots.
* Spot gold XAU= at $938.15 an ounce at 3:20 p.m. EDT (1920 GMT), against $932.80 in late Monday dealings in New
York.
* London afternoon gold fix XAUFIX= at $935 an ounce.
http://www.reuters.com/article/usDollarRpt/idUSN1843489020090818
Tuesday, April 21, 2009
Safety in Norway’s krone
The Norwegian krone might become the new Swiss franc as investors seek a haven from the turmoil engulfing the global economy, argues Axel Merk of Merk Investments.
“The world’s a mess and in our eyes policymakers are inadvertently doing their best to worsen a bad situation,” he says. “We are in a period where a depression, if not a long and drawn-out recession, is a very realistic probability. Where can investors hide?”
Mr Merk believes that recent actions by the Swiss National Bank have diluted the franc’s status as a haven currency.
“Investors put their money in Switzerland because of its safe haven appeal,” he says. “Now, the SNB intervenes in the currency markets to erode trust in the franc. The SNB is also more vulnerable as it engages in unconventional policies, from swap lines for eastern Europe to the issuance of US dollar-denominated Swiss Treasury bills.”
Mr Merk believes that Norway may replace Switzerland as the place to take refuge in Europe.
“Norway is a surplus country - an enviable position to be in should we face an extended depression - and it can afford to get through this crisis.
“The krone is not particularly ‘sexy’; if the markets recover, risk-friendly money may move towards other currencies again.
“However, in our assessment, the Norwegian krone may be the most appropriate depression trade.”
http://www.ft.com/cms/s/0/ca170f16-1239-11de-b816-0000779fd2ac.html?nclick_check=1
“The world’s a mess and in our eyes policymakers are inadvertently doing their best to worsen a bad situation,” he says. “We are in a period where a depression, if not a long and drawn-out recession, is a very realistic probability. Where can investors hide?”
Mr Merk believes that recent actions by the Swiss National Bank have diluted the franc’s status as a haven currency.
“Investors put their money in Switzerland because of its safe haven appeal,” he says. “Now, the SNB intervenes in the currency markets to erode trust in the franc. The SNB is also more vulnerable as it engages in unconventional policies, from swap lines for eastern Europe to the issuance of US dollar-denominated Swiss Treasury bills.”
Mr Merk believes that Norway may replace Switzerland as the place to take refuge in Europe.
“Norway is a surplus country - an enviable position to be in should we face an extended depression - and it can afford to get through this crisis.
“The krone is not particularly ‘sexy’; if the markets recover, risk-friendly money may move towards other currencies again.
“However, in our assessment, the Norwegian krone may be the most appropriate depression trade.”
http://www.ft.com/cms/s/0/ca170f16-1239-11de-b816-0000779fd2ac.html?nclick_check=1
Monday, April 20, 2009
Dow plunges 290
as investors worry about banks.
Investors are back to worrying about banks. Long-present unease about soured loans bubbled over on Monday after Bank of America Corp. said it set aside $13.4 billion to cover lending losses even as it posted earnings that beat expectations. Other big banks have also increased loss provisions in the past two weeks.
Financial stocks suffered some of the day's worst declines and major market indicators tumbled more than 3 percent, including the Dow Jones industrial average, which fell 290 points.
Bank of America plunged 24.3 percent and Citigroup fell 19 percent as investors became worried that cleaning up bad loans from banks' balance sheets may have farther to go than many had anticipated.
Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said traders are now viewing bank earnings with more skepticism and believe that the better-than-expected profit reports may be disguising problems.
"They're looking at bank numbers and are saying they are not that great," Saluzzi said.
Even without growing anxiety about financial stocks, traders had been looking for some pullback after the Dow jumped 24 percent from 12-year lows in early March.
The renewed worries about banks' debt problems were aggravated by news reports that their lending remains tight and that the government may swap its debt in banks for ownership stakes as its $700 billion bailout fund runs down.
Because of the central role lending plays in keeping businesses of all kinds going, investors have been hunting for signs of a recovery in banks before they get more optimistic about the broader economy.
The market has been encouraged by early indications that a government drive for lower interest rates has been helping banks step up lending, but investors are still sensitive to any signs of trouble.
Now they're on high alert about what the government will say in two weeks when it reports results of in-depth examinations to see which banks might need more help to stay afloat if the economy gets even worse.
Energy and materials companies also fell along with the prices of key commodities they rely on such as crude oil.
The market declines were broad and deep, outweighing what would otherwise be positive news about a step-up in deal activity. After a deal with IBM Corp. didn't work out, troubled technology company Sun Microsystems found a buyer in Oracle, a leading maker of business software, while PepsiCo Inc. said it would bid $6 billion to buy its two biggest bottlers.
According to preliminary calculations, the Dow fell 289.60, or 3.6 percent, to 7,841.73.
Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 37.20, or 4.3 percent, to 832.40, and the Nasdaq composite index fell 64.86, or 3.9 percent, to 1,608.21.
About 10 stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.8 billion shares.
Concerns about the sustainability of bank earnings weighed on financial stocks. Citigroup Inc. lost 19.5 percent, JPMorgan Chase & Co. fell 10.7 percent and American Express Co. fell 13 percent.
Jeffrey Frankel, president of Stuart Frankel & Co. in New York, said the retreat in financial stocks is welcome after their massive gains from early March — he said too sharp a rise could endanger a long-term advance. Many bank stocks have doubled in only weeks.
"These banks have had a tremendous run," Frankel said. "Now you're hearing the bearish camp speak up a little bit."
Investors are also cautious about financials after The New York Times reported that the government might be forced to find ways to stretch the $700 billion allocated for the government's bank rescue fund by converting the government's loans into common stock. Such a move would give the government a controlling stake in banks and hurt existing shareholders by reducing the value of their shares.
Separately, The Wall Street Journal reported that banks receiving government bailout money are having a hard time making loans.
Wall Street was more upbeat about the Oracle deal, which carries a 42 percent premium to Sun's Friday closing stock price of $6.69. Sun jumped 36.8 percent, while Oracle slipped 1.3 percent.
Beverage and snack maker PepsiCo offered to acquire Pepsi Bottling Group and PepsiAmericas in a move to cut costs. Pepsi lost 4.4 percent, while Pepsi Bottling jumped 22 percent and PepsiAmericas surged 26 percent.
In earnings news, drug maker Eli Lilly & Co.'s first-quarter earnings rose 24 percent on higher sales of the antidepressant Cymbalta and as costs for Humalog, a form of insulin Lilly makes, remained flat. Shares slipped 2.3 percent.
Light, sweet crude fell $4.45 to $45.88 a barrel on the New York Mercantile Exchange.
Occidental Petroleum Corp. lost 6.3 percent, while Dow Chemical Co. fell 9.1 percent.
In other market moves, the Russell 2000 index of smaller companies fell 26.88, or 5.6 percent, to 452.49.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.85 percent from 2.95 percent late Friday. The yield on the three-month T-bill was unchanged at 0.13 percent.
The dollar was mostly higher against other major currencies. Gold prices rose.
http://news.yahoo.com/s/ap/20090420/ap_on_bi_st_ma_re/wall_street
Investors are back to worrying about banks. Long-present unease about soured loans bubbled over on Monday after Bank of America Corp. said it set aside $13.4 billion to cover lending losses even as it posted earnings that beat expectations. Other big banks have also increased loss provisions in the past two weeks.
Financial stocks suffered some of the day's worst declines and major market indicators tumbled more than 3 percent, including the Dow Jones industrial average, which fell 290 points.
Bank of America plunged 24.3 percent and Citigroup fell 19 percent as investors became worried that cleaning up bad loans from banks' balance sheets may have farther to go than many had anticipated.
Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said traders are now viewing bank earnings with more skepticism and believe that the better-than-expected profit reports may be disguising problems.
"They're looking at bank numbers and are saying they are not that great," Saluzzi said.
Even without growing anxiety about financial stocks, traders had been looking for some pullback after the Dow jumped 24 percent from 12-year lows in early March.
The renewed worries about banks' debt problems were aggravated by news reports that their lending remains tight and that the government may swap its debt in banks for ownership stakes as its $700 billion bailout fund runs down.
Because of the central role lending plays in keeping businesses of all kinds going, investors have been hunting for signs of a recovery in banks before they get more optimistic about the broader economy.
The market has been encouraged by early indications that a government drive for lower interest rates has been helping banks step up lending, but investors are still sensitive to any signs of trouble.
Now they're on high alert about what the government will say in two weeks when it reports results of in-depth examinations to see which banks might need more help to stay afloat if the economy gets even worse.
Energy and materials companies also fell along with the prices of key commodities they rely on such as crude oil.
The market declines were broad and deep, outweighing what would otherwise be positive news about a step-up in deal activity. After a deal with IBM Corp. didn't work out, troubled technology company Sun Microsystems found a buyer in Oracle, a leading maker of business software, while PepsiCo Inc. said it would bid $6 billion to buy its two biggest bottlers.
According to preliminary calculations, the Dow fell 289.60, or 3.6 percent, to 7,841.73.
Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 37.20, or 4.3 percent, to 832.40, and the Nasdaq composite index fell 64.86, or 3.9 percent, to 1,608.21.
About 10 stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.8 billion shares.
Concerns about the sustainability of bank earnings weighed on financial stocks. Citigroup Inc. lost 19.5 percent, JPMorgan Chase & Co. fell 10.7 percent and American Express Co. fell 13 percent.
Jeffrey Frankel, president of Stuart Frankel & Co. in New York, said the retreat in financial stocks is welcome after their massive gains from early March — he said too sharp a rise could endanger a long-term advance. Many bank stocks have doubled in only weeks.
"These banks have had a tremendous run," Frankel said. "Now you're hearing the bearish camp speak up a little bit."
Investors are also cautious about financials after The New York Times reported that the government might be forced to find ways to stretch the $700 billion allocated for the government's bank rescue fund by converting the government's loans into common stock. Such a move would give the government a controlling stake in banks and hurt existing shareholders by reducing the value of their shares.
Separately, The Wall Street Journal reported that banks receiving government bailout money are having a hard time making loans.
Wall Street was more upbeat about the Oracle deal, which carries a 42 percent premium to Sun's Friday closing stock price of $6.69. Sun jumped 36.8 percent, while Oracle slipped 1.3 percent.
Beverage and snack maker PepsiCo offered to acquire Pepsi Bottling Group and PepsiAmericas in a move to cut costs. Pepsi lost 4.4 percent, while Pepsi Bottling jumped 22 percent and PepsiAmericas surged 26 percent.
In earnings news, drug maker Eli Lilly & Co.'s first-quarter earnings rose 24 percent on higher sales of the antidepressant Cymbalta and as costs for Humalog, a form of insulin Lilly makes, remained flat. Shares slipped 2.3 percent.
Light, sweet crude fell $4.45 to $45.88 a barrel on the New York Mercantile Exchange.
Occidental Petroleum Corp. lost 6.3 percent, while Dow Chemical Co. fell 9.1 percent.
In other market moves, the Russell 2000 index of smaller companies fell 26.88, or 5.6 percent, to 452.49.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.85 percent from 2.95 percent late Friday. The yield on the three-month T-bill was unchanged at 0.13 percent.
The dollar was mostly higher against other major currencies. Gold prices rose.
http://news.yahoo.com/s/ap/20090420/ap_on_bi_st_ma_re/wall_street
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