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Japan's Nikkei plummets early Friday

  • Story Highlights
  • NEW: Nikkei plunges more than 6 percentage points Friday morning
  • NEW: Markets in South Korea, Australia also down early Friday
  • Dow Jones has dropped nearly 10 percent during previous two days
  • Worse than expected economic data behind latest falls
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By Alexandra Twin
CNNMoney.com senior writer
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(CNN) -- Japan's Nikkei Index dropped more than 6.6 percent in early trading Friday after a second dismal day in a row on Wall Street.

An electric market board in Tokyo, Japan, tells the early trading trading story for the Nikkei.

The Dow Jones Industrial Average has lost 929 points -- 9.7 percent -- in two days of trading since Tuesday, as investors turned from the historic election of Barack Obama as U.S president to the gloomy economy he will inherit when he takes office in January.

Seoul's KOSPI index dropped 2.3 percent in early trading, and Australia's All Ordinaries index fell more than 4 percent.

The Dow fell 4.9 percent Thursday, while the Standard & Poor's 500 index dropped 5 percent and the Nasdaq composite declined by 4.3 percent.

"Everything is so dismal right now, It's just an endless flow of bad news and no one wants to buy," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

Rovelli said that the steady stream of bad economic reports and weak corporate earnings and forecasts was taking its toll. In particular, the number of companies announcing layoffs was unnerving investors, especially ahead of Friday's big monthly jobs report.

October retail sales from the nation's chain stores were mostly abysmal, with some discounters such as Wal-Mart Stores escaping the fray. The housing market collapse, credit crunch and strained labor market have all taken their toll on consumers' wallets. Even the recent retreat in oil and gas prices has not had much of a positive impact on consumer spending.

"People are realizing that the recession is going to drag on until at least the end of 2009," said Rovelli.

Bear market: Stocks, as represented by the S&P 500, shot up 18 percent in the seven trading sessions through Election Day, bouncing off a 35 percent slump in the six weeks before. Since Tuesday, the S&P 500 has lost at least 8 percent of that.

The zigzagging reflects the volatility that has been present for months, but also an attempt at finding a bear market bottom. After such a run, analysts say Wall Street was vulnerable to a pullback.

"I think we're in a bottoming process," said Mark Travis, president and CEO at Intrepid Capital Funds. "But it's not going to be a V-shaped bottom where it bounces and goes straight up."

He said that stocks will likely continue to seesaw through year-end, unless some of the traditionally favorable seasonal patterns kick in. Stocks aren't likely to move higher until at least the second quarter of next year, as investors start anticipating an economic recovery six or nine months out.

At the same time, investors put money into equity mutual funds for the first time in 14 weeks, according to tracking firm Trim Tabs. The amount of money invested by equity mutual funds in the week ended Nov. 6 totaled $4.4 billion versus the $9.2 billion withdrawn during the previous week.

Company news: Among stock movers, automakers were hit especially hard on continued worries about their ability to stay afloat without government help. General Motors, a Dow component, slumped 13.7 percent. Ford Motor lost 5.3 percent .

On Wednesday, GM's North American president said that the industry is facing a critical 100-day period in which it needs to amp up its efforts to secure government support.

Cisco Systems said late Wednesday it has stopped hiring and revenue for the current quarter won't meet forecasts. That overshadowed the company's better-than-expected earnings report. Shares fell 2.6 percent Thursday.

Las Vegas Sands continued to plummet on worries that it may default on certain debt obligations and that it can't raise enough capital. The company operates the Venetian and Palazzo casinos and a pair of casinos in China. Declines covered a variety of sectors, with all 30 Dow stocks falling, led by GM, Alcoa, American Express, Citigroup, General Electric, Intel and Boeing.

Market breadth was negative. On the New York Stock Exchange, decliners topped advancers by more than four to one on volume of 1.53 billion shares. On the Nasdaq, losers beat winners by almost three to one on volume of 2.43 billion shares.

Retail sales: With the exception of discount chain Wal-Mart, most retailers saw October sales in line with the bruised economy. Thomson Reuters estimates the monthly sales could be the worst in eight years.

Gap reported a 16 percent drop in sales at stores open a year or more, a retail industry metric known as same-store sales. Macy's same-store sales fell 6.3 percent and the company warned November sales would weaken.

AnnTaylor Stores said same-store sales fell 19 percent from a year ago. The women's clothing retailer also said it was expanding its restructuring program and warned that third-quarter results won't meet forecasts. Shares fell 25.7 percent.

Signs of the recession were evident in economic reports released earlier this week. They included dour readings on manufacturing, factory orders and the services sector and the worst monthly auto sales in 25 years.

Jobs: The number of Americans filing new claims for unemployment last week topped forecasts.

The weekly number followed a pair of monthly reports Wednesday that showed the labor market continued to get hammered in October.

The reports were especially worrisome ahead of Friday's big government report. That report is expected to show that employers cut 200,000 jobs from their payrolls in October. Meanwhile, the unemployment rate, which is generated by a separate survey, is expected to rise to 6.3 percent from 6.1 percent the previous month.

Other markets: In global trade, Asian markets tumbled on recession fears. European markets also closed with big losses, after European and British central banks cut interest rates.

The dollar rallied against the euro and the pound after monetary policy-makers in Europe cut interest rates in response to growing economic weakness. However, the greenback edged lower versus the Japanese yen.

COMEX gold for December delivery fell $10.20 to settle at $732.20 an ounce.

U.S. light crude oil for December delivery fell to a 19-month low, sinking $4.53 to settle at $60.77 a barrel on the New York Mercantile Exchange.

Gasoline prices fell another 2.5 cents to a national average of $2.34 a gallon, according to a survey of credit-card activity released Thursday by motorist group AAA. The decline marks the 50th consecutive day that prices have decreased. During that same time period, prices dropped by $1.51 a gallon, or 39.2 percent.

Lending rates: The credit market continued to improve. The 3-month Libor fell to 2.39 percent from 2.51 percent Wednesday, a nearly four-year low, according to Bloomberg.com. Overnight Libor rose slightly to 0.33 percent, bouncing off an all-time low of 0.32 percent the previous day. Libor is a key interbank lending rate.

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The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, fell to 0.30% from 0.39% Wednesday, with investors preferring to take a small return on their money than risk the stock market. Last month, the 3-month yield reached a 68-year low around 0 percent as investor panic peaked.

Treasury prices were little changed, with the yield on the benchmark 10-year note at 3.70 percent.

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