Dow Jones Plunges more than 300 points !

NEW YORK - US shares plunged on Thursday in one of the worst selloffs this year, as investors gripped by housing market and 'credit crunch' fears ran for cover.

A late comeback helped Wall Street avert its worst session of the year, but analysts said the punishing losses may have caused a shift in investor sentiment after strong gains in the first half of the year.

The Dow Jones Industrial Average sank as much as 448 points before bouncing back somewhat, ending with a loss of 311.50 points (2.26 per cent) at 13,473.57.

It was the worst day for the blue-chip index since the Feb 27 tumble in the wake of a stock market collapse in Shanghai, in which the Dow average lost 416 points.

The tech-heavy Nasdaq composite sank 48.83 points (1.84 per cent) to 2,599.34 and the broad-market Standard & Poor's 500 index slid 35.43 points (2.33 per cent) to 1,482.66.

The market was reacting to more gloomy news about the US housing market, which has been in a slump for more than a year and a half.

Data showed sales of new homes dropped 6.6 per cent in June to an annualised 834,000 units. Over the past year, sales of new homes plunged 22.3 per cent

More significantly, Wall Street is worried that failures in the housing market will hurt banks and finance companies enough to curb the availability of credit on which the economy feeds.

'The catalyst for the selloff is just a realisation that the subprime and housing issues have a lot more tentacles than originally thought and that the restriction in credit will hurt the (corporate) deal flow and by extension equity performance,' said Mr Paul Nolte, analyst at Hinsdale Investments.

Mr Nolte said he believes stock market valuations remain high even though they are below the levels of the dot-com boom.

'Ten years ago the market was expensive, then we got to crazy expensive, but we haven't gotten back to normal valuations,' he said.

Mr Kevin Giddis, an analyst at Morgan Keegan, said some of the speculative fervour is coming out of the stock market.

'Hedge funds and private equity transactions are carrying the equity market to new records,' he said.

'As money gets tighter and tighter, this activity will cease. When it does, the market must then turn its attention back to earnings, and across the board, they are not as good as they seem,' he added.

But Mr Andy Brooks, head of equity trading at T. Rowe Price, said herd psychology led to a selling stampede that may not be justified.

'It seems psychology is carrying more weight than the actual facts,' Mr Brooks said.
He said the selloff is part of 'a healthy correction' to 'wring out the excess' in the market and advised clients to hold firm.

'I think this is an opportunity to buy good companies at better prices,' he said. 'Stocks are on sale today. If you have a long-term view and you're looking for an opportunity to get in the market, now is a good time,' he added. -- AFP