Wall Street plunges as Qwest confirms probe

WALL Street went into freefall yesterday, plummeting to lows unseen since 1997, as the market was rocked by yet another accounting scandal and an unexpected reshuffle of the Standard & Poor’s 500.

Selling intensified as the closing bell approached. The Dow Jones Industrial Average slumped 282.59 points, or 3.11 per cent, to 8,813.50, the largest decline since late September 2001.

The broad Standard & Poor’s 500 skidded 32.36 points, or 3.4 per cent, to 920.47, its lowest finish since October 1997.

Wall Street has suffered three straight days of deep declines. The market has been on a mostly downward spiral as blow-ups like WorldCom’s $3.85 billion accounting scandal, fears of another terror attack on the US and apprehension over the forthcoming quarterly earnings season have rattled the market.

Telecom giant Qwest Communications sank more than 31 per cent after the local telephone company said it revealed it was the subject of a criminal investigation by the US Attorney’s office in Denver.

Late on Tuesday, Standard & Poor’s said it would remove seven non-US companies from its S&P 500 index. Five Canadian companies, along with Royal Dutch Petroleum and Unilever were ousted. The replacements include United Parcel Service; Electronic Arts; eBay; Goldman Sachs Group; Prudential Financial; Principal Financial Group and SunGard Data Systems.

Usually, stocks added to an index get an initial boost as the managers of index-tracking funds snatch up the shares. Shares of all the new entrants rose. However, stocks exiting the S&P were a drag on it with Royal Dutch Petroleum, off $5.16, or 9.23 per cent, at $50.73. Canadian firms Nortel Networks, Alcan, Barrick Gold, Placer Dome and Inco also slumped on news of their impending exit.

In another development, a public interest group is suing US vice president Dick Cheney and the oil services company he once ran, Halliburton, alleging they defrauded shareholders by overstating the company’s revenues. Halliburton shares fell 52 cents to $13.55.

The civil lawsuit was filed in federal court a day after President George W Bush went to Wall Street to outline proposals aimed at stopping the accounting scandals that have shaken investor faith in the US financial markets.

The Dow was dragged lower by issues such as vehicle maker General Motors, which lost $3.57, or 7 per cent, at $47.57. Rival Ford lost $1/12, or 7.4 per cent, to $13.99. Banc of America cut the car giants to “market perform“ from “buy” due to concerns over competitive industry pricing.

Pharmaceutical giant Merck slumped $2.18 to $43.57. The Dow component delayed the $980 million public sale of its Medco Health Solutions pharmacy subsidiary for a third time.

The US Attorney’s office did not disclose the subject matter of the Qwest investigation. Following the news, Qwest’s shares fell 83 cents, or 31.92 per cent, to $1.77.

Nasdaq Report

THE Nasdaq Composite Index tumbled 35.10, or 2.54 per cent, to 1,346.02, its lowest close since May 1997.

Cisco Systems led the tech sector up early on with a gain of almost 5 per cent for the stock, after Merrill Lynch raised the rating on the web gear giant to “strong buy” from “buy,” saying it expected an imminent turnaround in the network equipment sector.

But the gains were not sustained in the tech sector. Merrill set a 12-month price target of $18 on Cisco. The shares were the most active on the Nasdaq and gained 37 cents at $13.51.

Merrill also raised the rating on network gear maker Extreme Networks to “strong buy” from “buy,” citing signs of a recovery in spending by large corporate customers. Extreme rose 60 cents, or 6.43 per cent, to $9.93.