Friday February 27, 2009, 5:16 pm EST
NEW YORK (Reuters) - U.S. stocks fell and the S&P 500 marked its worst-ever start to a year on Friday, after the government said it will take a large stake in Citigroup's common shares, fanning fears it will increase its role in other major banks.
The decline closed out a grim month on Wall Street, with the Dow industrials hitting the lowest level since May 1997 as the blue-chip index fell for a sixth straight month.
Healthcare and drug companies, such as Merck & Co (NYSE:MRK - News) and Johnson & Johnson Inc (NYSE:JNJ - News), fell for a second day on Friday on worries that U.S. President Barack Obama's budget proposal will strangle profits as the administration tries to rein in healthcare costs.
Data showing the U.S. economy shrank at an annual rate of 6.2 percent last quarter also weighed on the market.
Citigroup (NYSE:C - News) shares tumbled 39 percent after the government said it will convert up to $25 billion in the bank's preferred shares to common stock in a move that could dilute existing shareholders' ownership by 74 percent. The S&P financial index (^GSPF - News) sank 8.1 percent.
"There are continued beliefs that Citibank is not the last bank that the government will take a large stake in," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.
"Some people believe that if the government takes a 30 to 40 percent stake, which they did in Citibank, that would be considered some form of nationalization," he said. more...
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