US indices down 2% on subprime fears

The tentative gains made by Wall Street last week were rapidly erased yesterday as fears about subprime mortgage lending sparked a broad sell-off in stocks.

After a shaky start provoked by a stronger yen and weak US retail sales data, stocks tumbled at midday on the release of data showing slightly higher-than-expected mortgage delinquency rates.

This prompted nervous investors to sell shares in investment banks in spite of strong results from Goldman Sachs that showed a 29 per cent rise in first quarter profits. The alarm spread to drag down every market sector by mid-afternoon.

Financial groups led the way down. Lehman Brothers and Bear Stearns, which are active in the mortgage market, plunged 5.7 and 6 per cent respectively to $72.20 and $143.91. The S&P investment banking and brokerage index was 3.6 per cent down. Even Goldman slipped 1.2 per cent to $200.09.

“The subprime situation came into a market that is cruising for a bruising – subprime just greases the slide,” said Al Goldman, chief market strategist at AG Edwards.

“If employment stays steady, we don’t see the subprime problem bringing down the whole market.”