Chinese stimulus concerns hit Wall Street

Last Updated: Fri, 6 Mar 2009 10:07:00 +1100

US stocks have plunged overnight on a spate of weak economic news, corporate woes and disappointment about the lack of an expected new Chinese economic stimulus plan.

The Dow Jones Industrial Average sank 281 points, or 4 per cent, to 6,594 just after the closing bell, tumbling to a new 12-year low. The Nasdaq composite shed 54 points, also 4 per cent, to nearly 1,300.

A warning from auditors that carmaker General Motors (GM) may not survive the financial crisis, and could file for bankruptcy, sent GM's stock on a 17 per cent slide.

GM has lost some $US82 billion since 2005, and has been hit hard by the steep drop in global auto sales in the past year.The company is seeking billions of dollars in assistance from the US government and has already announced it will cut 47,000 jobs worldwide over the next few months.

Citigroup's shares fell bellow $US1, prompting some analysts to question its inclusion in the Dow Jones Industrial Average.

There are also concerns that the troubled finance arm of General Electric could lead to a ratings downgrade for the entire company.

And a report showing bleak monthly sales from major US retailers has contributed to the overall negative sentiment.

Chinese disappointment

The market was also disappointed that China failed to deliver a hoped-for economic stimulus - prospects for which had sparked a big rally in global markets yesterday.

In a speech at China's annual parliamentary session in Beijing yesterday, Premier Wen Jiabao offered no indication that his government's original stimulus economic package would be added to.

He said that package was already a "dramatic increase" in government investment, and would take the budget into deficit by $US138 billion.

Xing Ziqiang, an economist at China International Capital Corp, says investors who had looked to Mr Wen's speech for a major stimulus announcement were misplaced.

"[This speech] reflects the confidence of top leaders that China will be able to maintain 8 per cent growth with the initial stimulus, and that there is no need to make it bigger," he says.

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