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While you were sleeping: BusinessWire Overnight Wrap

Friday 8th August 2008

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Renewed credit jitters, triggered by a loss at insurer AIG, a settlement payout by Citigroup and a warning about Amex's debt rating, led Wall Street sharply lower after two days of solid gains.

The Dow Jones industrial average slid 224.64 points, or 1.93%, to close at 11,431.43. The Standard & Poor's 500 Index fell 23.11 points, or 1.79%, to 1,266.08, while the Nasdaq Composite Index dropped 22.64 points, or 0.95%, to 2,355.73.

In addition to posting a quarterly net loss, AIG reported a general deterioration in its mainstream insurance business. Analysts said the news suggested that fallout from the credit crisis, spawned by the US housing slump, was far from over. AIG's shares fell 18.1% to $23.84.

Citigroup added to the sector's unease after the bank agreed to buy back more than $7 billion of illiquid auction-rate securities to settle charges it misled investors about the debt's risk. American Express' shares fell after Moody's Investors Service said it might downgrade the credit card company's debt rating.

According to Retail Metrics, 54% of retailers reported July sales that missed expectations, with discount retailers showing the best relative performance of the group. Department stores fared the worst.

Wal-Mart shares fell 6.3% to $56.96 and Target Corp fell 4.7% to $45.76. Abercrombie and Fitch shares fell 10.6% to $49.80.

US crude oil prices ended up $1.44 at $120.02 a barrel, stemming three days of losses, as a pipeline shutdown in Turkey due to an explosion raised supply worries.

The US dollar rose broadly and hit a 5-1/2-month high against a basket of currencies on Thursday, bolstered by a surprise rise in June home sales and diminished expectations for euro zone interest rate increases.

Europe On Hold

Both the Bank of England and the European Central Bank opted to leave their respective interest rates on hold after policy meetings overnight.

The US dollar index on the ICE futures exchange rose to as high as 74.604, the highest since late February. It was last up 0.3 percent at 74.509.

The euro fell to a seven-week low at $1.5333, down 0.5 percent from late on Wednesday. The dollar rose 0.% against the Swiss franc to 1.0621 francs.

Most analysts now expect the US dollar to gain in the second half of the year, as the credit crunch showed increasing signs of spreading to the euro zone, Japan, Australia and other major economies.

The yield on the 30-year bond plunged 15 basis points, or 0.15 percentage point, to 4.55% as of 4:26pm in New York, according to BGCantor Market Data. It was the biggest drop since December 11. The 4.375 percent security due February 2038 rose 2 1/4, or $22.50 per $1,000 face amount, to 97 6/32.

The 10-year note yield declined 14 basis points to 3.92 percent. The decrease was the greatest since March 19, the week the Federal Reserve cut interest rates, opened the discount window to investment banks and arranged the sale of Bear Stearns Cos. to forestall a financial-market crisis.

The two-year note yield dropped 15 basis points to 2.42%, the lowest since July 17.

By Jonathan Underhill

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