AIG Touch Off A Wave of Financial Turmoil

Tuesday - Bond prices jumped and Stocks extended their steep decline, a day after Wall Street's worst session in years, as panic investors grappled with concerns about insurer American International Group Inc. (AIG) and awaited the Federal Reserve's (the Fed) decision on interest rates.

Investors are fearful that a failure by the world's largest insurance company would touch off a wave of financial turmoil. AIG fell $3.09, or 65%, to $1.67 in early trading. Worries about the well-being of AIG have intensified after the several ratings agencies reduced their ratings on the company. Lower ratings can add to the amount of money the already cash-strapped company has to set aside.

Comments from Goldman Sachs Group Inc. about the banking sector added to investors' glum mood. Moreover, all markets around the world were still reeling from the bankruptcy filing of Lehman Brothers Holdings Inc. and the quickly assembled weekend acquisition of Merrill Lynch & Co. by Bank of America Corp. Investors afraid that tectonic shifts in the power structure of Wall Street signal that the financial sector's trouble with imperiled credit are far from over.

Bond prices raised as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note that moves opposite its price, drop to 3.30% from 3.41% late Monday.

On the other hand, in the 1st half-hour of trading, the Dow fell 48.61, or 0.45%, to 10,868.90. The Dow drop as much as 175 in the opening minutes of the session; on Monday, the Dow lost 504 points, its largest drop since the September 2001 terror attacks. Moreover, broader stock indicators also fell. The Standard & Poor's 500 index declined 11.59, or 0.97%, to 1,181.11, and the NASDAQ composite index fell 19.83, or 0.91%, to 2,160.08.

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