Wall Street falls

Wall Street falls, unable to shake economic woes

By MADLEN READ, AP Business Writer

NEW YORK – Wall Street's initial enthusiasm about a $586 billion Chinese stimulus package fizzled Monday, as investors succumbed to anxieties about how U.S. companies will survive a severe pullback in spending.

Stocks got a short-lived boost from China's plans to boost its economy through a mix of spending, subsidies, looser credit policies and tax cuts. The package could benefit multinational companies with business in China such as General Electric Co. and Caterpillar Inc.

But Wall Street's optimism quickly waned, as it has tended to do since the mid-September downfall of Lehman Brothers Holdings Inc. and government takeover of the troubled insurance giant American International Group. Market participants realized that while China's stimulus is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the United States.

There was little news Monday to placate investors worried about the health of corporate America. AIG got more money from the U.S. government, but the nation's struggling automakers have yet to hear whether they, too, will get federal aid. And electronics retailer Circuit City Stores Inc. filed for bankruptcy protection.

With few signs of recovery in the economy, few investors are confident enough to make big bets on stocks, although they look cheap; the major indexes are down about 40 percent from their October 2007 peaks. "They'd like to be optimistic, but individual investors are still very worried," said Hugh Johnson, chief investment officer of Johnson Illington Advisors. Uncertainty about the economic outlook is "likely to hold any recovery somewhat in check. We're arguably undervalued, so we can work our way higher. But it's not going to be with a lot of gusto."

According to preliminary calculations, the Dow Jones industrial average fell 73.27, or 0.82 percent, to 8,870.54, after rising by 215 points in early trading and tumbling by as many as 183. But trading was fairly orderly in the last hour — in recent weeks, stocks have often seen high volatility late in the day. Broader indexes also ended lower. The Standard & Poor's 500 index fell 11.78, or 1.27 percent, to 919.21, and the Nasdaq composite index fell 30.66, or 1.86 percent, to 1,616.74.

The U.S. government said it would invest $40 billion into AIG, which also reported a nearly $25 billion third-quarter loss Monday. AIG, which got its first bailout in September, has so far received a total of $150 billion in government aid. The government's investment Monday helped the insurer's stock rise 26 cents, or 12 percent, to $2.37, but raised worries that problems in the financial sector might be worse than anticipated. Most bank shares fell.