March 30 (Bloomberg) -- U.S stocks slumped the most in three weeks as the Obama administration warned that some banks will need more government aid and that General Motors Corp. and Chrysler LLC have one last chance to restructure. Treasuries and the dollar gained.
Bank of America Corp. slid 18 percent and Citigroup Inc. sank 12 percent after U.S. Treasury Secretary Timothy Geithner said some banks will need “large amounts” of assistance. General Motors plunged 25 percent as Obama said GM and Chrysler must survive without becoming “wards of the state.” Alcoa Inc. tumbled 14 percent after Aluminum Corp. of China Ltd.’s profit decreased by more than 99 percent.
The Standard & Poor’s 500 Index fell 3.5 percent to 787.53, trimming its March rally to 7.1 percent. The Dow Jones Industrial Average tumbled 254.16 points, or 3.3 percent, to 7,522.02. The MSCI World Index of 23 developed countries lost 3.9 percent.
“Whether or not there are banks at risk is still a serious concern,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages $22 billion. “When you’re looking for excuses to sell off, certainly those sorts of things are realistic worries. We may well go back and test the lows.”
The slide today trimmed the S&P 500’s advance from a 12- year low on March 9 to 16 percent, leaving it down 13 percent in 2009. Stocks had rebounded this month from as firms from Citigroup to JPMorgan Chase & Co. said they were profitable in January and February and Geithner detailed plans to rid banks of toxic assets.
The S&P 500, the benchmark index for U.S. stocks, advanced 21 percent in the 14 trading days ended March 27, the most over a stretch of that size since 1938, according to data compiled by New York-based S&P analyst Howard Silverblatt.
VIX Jumps
The VIX, which measures the cost of using options to hedge against further declines in the S&P 500, climbed 11 percent to 45.68 today, its steepest advance since March 2.
The U.S. government’s comments on banks, GM and Chrysler helped push the yield on the 10-year Treasury note down five basis points to 2.71 percent. The dollar and yen climbed against all other major currencies as investors sought assets perceived as relatively safe.
Morgan Stanley strategist Jason Todd said investors should sell U.S. stocks as earnings keep weakening. Goldman Sachs Group Inc. cautioned investors against moving into shares of so-called cyclical businesses, which are dependent on economic growth, from “defensive” shares because a sustained market rally may take longer to unfold.
‘Rotating Late’
“History suggests that investors are better off rotating late versus early as bottoms are hard to time and much of the cyclical outperformance occurs 4 to 12 months post-trough,” Goldman Sachs strategists led by New York-based David Kostin wrote in a report. The S&P 500 will “trade in a near-term range from 700 to 800.” Goldman Sachs’s year-end forecast for the index is 940, a 15 percent gain from its close on March 27.
Europe’s Dow Jones Stoxx 600 Index slipped 3.8 percent, erasing its March advance and leaving it with a quarterly slump of 14 percent. Goldman Sachs said the rally in European stocks since March 9 will lose steam as gains were fueled by low share prices and government stimulus rather than an improving economy.
An index of executive and consumer sentiment in the euro region declined in March to the lowest level since the gauge was first published in 1985, the European Commission said today.
‘No Magic Fix’
“There is no magic fix for the economy,” said Stephen Docherty, Edinburgh-based head of global equities at Aberdeen Asset Management, which has $158 billion. “We have had a few days without any bad news so people started to get optimistic. Trying to call the bottom for the market is impossible. We are not going to get anything sustainable until we get a solution to the financial system.”
Bank of America, the largest U.S. bank by assets, lost 18 percent to $6.03 and Citigroup dropped 12 percent to $2.31. Wells Fargo & Co., the biggest West Coast bank, slid 14 percent to $13.37. Geithner said yesterday on the ABC News program “This Week” that some banks are going to need “large amounts of assistance”
The Treasury has about $135 billion left in a financial- stability fund, Geithner said, while declining to say whether he will need to request additional money.
JPMorgan fell 9.3 percent to $24.85. The biggest U.S. bank by market value had a “tougher” month in March and Bank of America’s trading book “was not as good” as in the first two months of the year, the banks’ chief executive officers Jamie Dimon and Kenneth Lewis told CNBC last week.
Lincoln National Corp. plunged 38 percent, the most in the S&P 500, to $6.41. The insurer seeking $3 billion in U.S. capital withdrew its application for the government program to sell debt with a federal guarantee.
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