Wall Street sinks by three percent

NEW YORK – U.S. stocks suffered their worst drop in a month after the Federal Reserve said there were “significant downside risks” to the economy even as it took another stab at boosting growth.

Selling accelerated as volume spiked in the last hour of trading, with banks and insurers leading the decline, as the KBW Bank index .BKX slid 5.5 percent and the KBW Insurance index .KIX off 5.2 percent. Bank of America (BAC.N) lost 7.5 percent to $6.38 and Prudential Financial Inc (PRU.N) slid 6.6 percent to $45.73.

The Fed, as expected, said it would buy more long-term Treasury securities in an effort to lower borrowing rates. But investors worry that the Fed’s latest plan will have little effect on lending in an economy that appears to be stagnating, which the Fed also noted.

“That was probably the biggest statement when he said ‘significant downside risks,'” said Alan Valdes, director of floor operations for DME Securities in New York. “Considering we’ve done over $1 trillion, and it hasn’t moved the needle at all,” he added, referring to the Fed’s previous stimulus efforts.

Traders attributed the late-day drop to investors pulling back from bets made during last week’s rally, and new short positions after the market failed to rise on the Fed news.

Source: Chuck Mikolajczak, Reuters