Stocks sink after Citi deal, GDP reading

Wall Street ended another unforgiving month with a steep loss -- one that left the Dow Jones industrial average at less than half its record high.

The day’s news unsettled investors. Citigroup agreed to turn over a big piece of itself to the government, a move that fanned worries that other banks would face crippling trouble with bad debt. General Electric slashed its quarterly dividend 68%. Both companies are part of the Dow Jones industrial average, which fell 119 points.

And the government’s gross domestic product report showed that the economy shrank at a 6.2% annual pace at the end of last year, much worse than the initial estimate.

For investors, it all added up to a prolonged and increasingly painful recession.

“I don’t think there is the confidence that the recovery is going to happen very quickly. It’s going to take time,” said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.

Some analysts said the market’s slide could have been worse -- the major indexes finished well above their lows.

Dan Cook, senior market analyst at IG Markets in Chicago, said Wall Street’s ability to show some capacity to recover despite the onslaught of bad news was a good sign.

“We have become somewhat callous to these news announcements,” he said.

The Dow fell 119.15 points, or 1.7%, to 7,062.93. The S&P; 500 index fell 17.74 points, or 2.4%, to 735.09, and the Nasdaq composite index fell 13.63 points, or 1%, to 1,377.84.

The market’s stats once again showed how troubled Wall Street and the economy are.

* The Dow, at its lowest close since May 1, 1997, is now down 50.1% from its record high of 14,164.53 reached in October 2007. It came within 34 points of 7,000, a level it hasn’t fallen below since October 1997.

* The Standard & Poor’s 500 index breached its Nov. 21 trading low of 741.02, which came during the height of the credit crisis. Friday’s finish was the lowest for the index since Dec. 18, 1996.

* The Dow’s 11.7% loss for the month was its sixth straight and its worst February decline since a 15.6% drop in February 1933. The half-year slide totals 38.8%, the worst since 1932, when it fell 45%.

The S&P; 500 index fell 11% for the month. It was the second-worst February for the index, topped only by an 18.4% slide in 1933. It was the index’s fifth monthly drop in six months; it managed a slender gain of 0.8% in December.

The losses in the final trading session of the month occurred as Wall Street had been hoping that stabilizing Citigroup would help ease worries about the beaten-down bank stocks and remove some questions about the prospects for the industry.

But analysts said the loss to regular shareholders from the government’s move touched off worries that other banking companies could see their shares hit as well.

Citigroup said before the opening bell that it had agreed to a deal in which the U.S. government and private investors, including Saudi Prince Alwaleed bin Talal and the government of Singapore, will convert their preferred stock in the struggling bank to common shares. The plan won’t require additional money from the U.S. government, which holds an 8% stake in Citigroup and would own 36%.

Some sort of deal with the government had been expected for much of the week. But Citi fell 96 cents, or 39%, to $1.50 as investors worried about how much their holdings in the company would be diluted by the changes.