NEW YORK – Stocks sank Thursday as investors fretted over a rise in unemployment claims and the prospect of more bank failures. The Dow Jones industrial average fell 112 points, breaking its four-day winning streak.
Federal Reserve Chairman Ben Bernanke said in testimony to Congress that while large U.S. banks will likely recover from the recent credit crisis, other banks are at risk of failing. Three small U.S. banks have already failed since the summer, when the lending industry started losing billions of dollars as mortgage defaults soared.
“Implying that some banks may fail stirs concerns for any investor who’s familiar with financial and economic history,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “Investors have been very edgy about credit market conditions and banks’ financial conditions. Very edgy. And this doesn’t remove that edginess.”
Earlier, stocks had fallen in response to a Labor Department report that first-time unemployment claims rose last week by 19,000 to 373,000, the highest level since late January.
Following four straight days of gains in the Dow – its longest run of gains so far this year – the blue-chip index sank 112.10, or 0.88 percent, to 12,582.18.
Broader stock indicators also lost ground. The Standard & Poor’s 500 index declined 12.34, or 0.89 percent, to 1,367.68, and the Nasdaq composite index lost 22.21, or 0.94 percent, to 2,331.57.
Bernanke offered up some positive comments in his testimony – that most banks will bounce back from their mortgage troubles, that inflation should ease, and that the United States is nowhere near the stagflation scenario of the 1970s.
Overseas, Japan’s Nikkei stock average fell 0.75 percent. Britain’s FTSE 100 fell 1.75 percent, Germany’s DAX index fell 1.92 percent, and France’s CAC-40 fell 1.97 percent.