NEW YORK — Stocks pulled back sharply Monday as news that major U.S. banks will set up a fund to help bail out the credit markets stirred concerns about bad debt and as oil prices surged to $86 per barrel for the first time. The Dow Jones industrial average lost more than 100 points.
The stock market’s pullback comes not only amid concerns about debt and rising energy costs but as investors await third-quarter reports due this week from more than 80 components of the Standard & Poor’s 500 index.
The concerns about banking came after Citigroup Inc., the biggest U.S. bank, reported that third-quarter results fell 57 percent. The company said it lost more than $3 billion in mortgage-backed-security losses, leveraged debt write- downs and fixed-income trading losses.
The bank – along with JPMorgan Chase & Co. and Bank of America Corp. – announced the creation of a fund to help revive the asset-backed commercial-paper market. The fund will buy assets from structured investment vehicles, also known as SIVs, which buy corporate bonds and subprime-mortgage debt. The bailout was orchestrated by the Treasury Department to avoid a fire sale in the market.
“It’s a reminder that this problem never was entirely put to bed. There may be financial institutions out there that are in more trouble than we thought they were,” said Aaron Gurwitz, co-head of portfolio strategy at Lehman Brothers Investment Management, referring to concerns about bad debt.
The Dow fell 108.28, or 0.77 percent, to 13,984.80.
Broader stock indicators also declined. The S&P 500 index fell 13.09, or 0.84 percent, to 1,548.71, and the Nasdaq composite index fell 25.63, or 0.91 percent, to 2,780.05.
Wall Street’s unease Monday follows a period of calm after worries about the credit markets roiled markets around the world over the summer. During August and into September, investors were concerned that mortgages made to borrowers with poor credit that had been bundled together and sold off as investments would resurface and cause widespread losses.
Indeed, some hedge funds and other investment vehicles worldwide that held subprime debt succumbed to the soured loans.
It wasn’t until the Fed stepped in with reductions in short-term interest rates and the rates it charges to loan to banks that the credit markets began to show signs of recovery.
