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While you were sleeping: BusinessWire overnight wrap

Wednesday 16th July 2008

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The Dow Jones Industrial Average closed below the 11,000 mark for the first time in more than two years, after Federal Reserve chairman Ben Bernanke painted a grim outlook for the World's biggest economy.

In testimony to the US Congress on Tuesday, Bernanke said there were "significant downside risks to the outlook for growth" and the risks to accelerating inflation were rising.

The Dow dropped 92.65 points, or 0.84%, at 10,962.54, and the Standard & Poor's 500 Index fell 13.39 points, or 1.09%, at 1,214.91. The Nasdaq Composite Index was up 2.84 points, or 0.13%, at 2,215.71.

Fannie Mae and Freddie Mac, the largest US mortgage- finance companies, tumbled more than 26%. The S&P 500 Financials Index dropped 3%, capping its steepest-ever five-day retreat.

Despite the slide in the bank sector, shares of Lehman Brothers surged 6.6% to $13.22 after a report that the investment bank was considering ways to go private.

Among energy shares, Exxon Mobil slid 3.8% to $82.19 as the price of crude oil plunged. The S&P energy index shed 4.19%.

Trading volume was moderate on the New York Stock Exchange, with about 1.85 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.7 billion shares traded, above last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by three to one, whole on the Nasdaq, about three stocks fell for every two that rose.

More than $13 trillion has been wiped off the value of global equities since October as $416 billion in credit-related losses prolonged the global economy's slump and rising commodity prices stoke inflation, Bloomberg News reported. Among the 23 industrialised nations in the MSCI World Index, only Canada has averted a bear market.

Euro gains

The euro jumped to a record peak of $1.6037, according to Reuters Dealing data. In late New York trade, the euro was flat at $1.5902.

Against a basket of six currencies, the dollar fell to a three-month low of 71.314 but later recovered to around 71.746, down about 0.3% on the day.

Federal funds futures on the Chicago Board of Trade show a 5% chance that the Fed will increase the 2% target lending rate at its August 5 meeting, compared with 77% odds a month ago.

The yield on the two-year note fell 7 basis points, or 0.07 percentage point, to 2.38% at 4:19pm in New York, according to BGCantor Market Data. It touched 2.26%, the lowest since May 12. The 2.875% security due in June 2010 advanced 1/8, or $1.25 per $1,000 face amount, to 100 30/32.

The 10-year note yield declined three basis points to 3.83%. The difference in yields, or spread, between two and 10-year notes widened to 145 basis points, from 141 yesterday.

Treasuries have rallied this week as traders bet widening credit-market losses will prevent policy makers from increasing interest rates. Last month investors bet borrowing costs would rise as soon as September to quell accelerating inflation.

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