Associated Press Dow breaks 7,000 for first time since '97 as AIG gets more gov't funding, posts $61.7B loss

NEW YORK (AP) -- Investors' despair about financial companies and the recession has brought the Dow Jones industrial average to another unwanted milestone: its first drop below 7,000 in more than 11 years. The market's slide Monday, which took the Dow down 300 points, was nowhere near the largest it has seen since last fall, but the tumble below 7,000 was nonetheless painful.The credit crisis and recession have slashed more than half the average's value since it hit a record high over 14,000 in October 2007. And now many investors fear the market could take a long time to regain the lost 7,000.

"As bad as things are, they can still get worse, and get a lot worse," said Bill Strazzullo, chief market strategist for Bell Curve Trading. Strazzullo said he believes there's a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.

The "game-changer," he said, will be the housing market and whether it can stabilize.

A recovery will also require signs of health among financial companies, but so far in 2009, it is clear that banks and insurance companies' losses are multiplying despite hundreds of billions of dollars in government help. The market fell Monday after insurer American International Group Inc. posted a staggering $61.7 billion in quarterly losses and as the government agreed to inject more money into the company. AIG will get another $30 billion in loans, on top of the $150 billion the government has already invested.And it's not just U.S. companies that have Wall Street frightened. HSBC PLC, Europe's largest bank by market value, said Monday it needs to raise $17.7 billion. The company reported a 70 percent drop in 2008 earnings and said it would cut 6,100 jobs.

While the root of financial firms' problems lie with the bad bets they made on mortgages and mortgage-backed securities, now the recession is exacerbating their problems as it also forces millions of job cuts.

"The economy definitely has deteriorated since November," said Sean Simko, head of fixed income management at SEI Investments. "It's just the fact that we haven't seen signs of improving or stabilizing, per se, which is adding to the morass of the market." more...