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Late-day sell-off is feverish

DES MOINES, Iowa — There was a time when thresholds meant something. The Dow Jones average sinking below 8,000 must mean the bottom is near. The S&P 500 falling 50 percent from its high must signal the end of the freefall.

Economists, money managers and traders who watch the markets closely say you can't assume previous bear market measures mean much. They acknowledge they don't know where the bottom is and anxiety remains high. So does the selling, which continued Thursday.

Wall Street saw intense selling late in the session after hopes faded that lawmakers would quickly assemble an aid package for U.S. automakers, and as the Standard & Poor's 500 index broke through lows established in 2002. That breach of a key technical threshold sent a shudder through the market and touched off further selling.

The S&P 500 index fell 6.7 percent to its lowest close since April 1997. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow's two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.

"The thresholds are irrelevant. We just blow right through them," said Diane Swonk, chief economist with Mesirow Financial Holdings Inc., a Chicago-based investment firm.

She said any confidence that had come back from news of a government financial services bailout and lower interest rates seems to have evaporated as Bush administration officials now say they'll hand off much of the bailout responsibilities to the incoming Obama administration. "It's very difficult for individuals and financial markets particularly to shake off the fear when basically Washington is on hold in the middle of a crisis," she said.

Stocks rose briefly during the session on hopes that Washington would agree to help Detroit's Big Three. But Democratic leaders in Congress delayed a vote on bailing out the auto industry until December and are asking General Motors, Ford and Chrysler to present a plan to show how they would use the $25 billion cash injection they have sought.

"Until they show us the plan, we cannot show them the money," Speaker Nancy Pelosi, D-Calif., said at a hastily called news conference in the Capitol.

GM, Ford and Chrysler quickly issued statements promising to submit the blueprint the Democrats demanded. Their deadline is Dec. 2. The companies have painted a grim picture of what would happen if they don't get the aid. GM has said it could go under before year's end, and Chrysler might not be far behind. Ford has said it can survive through 2009, but it's unclear how much longer.

Investors who have been groping for a bottom to the yearlong market rout have been worried that Washington's disagreements over whether to bail out the auto industry could lead to bankruptcies that would cascade into other industries and throw perhaps millions of workers out of work.

Randy Frederick, director of derivatives at the Charles Schwab Center for Financial Research said there's no sure way to tell when the market hits bottom, but if history is any guide, we're likely near the end of the down cycle. The average bear market — a prolonged decline in the stock market of 20 percent or more — lasts about 13 months and the current cycle began in October 2007.

Still, history would also suggest improvement in the broader economy will take longer. Average recessions last 10 to 11 months and many think the current one started in January, he said.

"Once we bottom out on the markets and actually start to go higher, which it doesn't look like we've done yet, the economy still could have another three to eight months more to go before it digs out," he said.

Thursday's Labor Department report said claims for unemployment benefits jumped last week to 542,000, the highest level since July 1992 and fresh evidence of a rapidly weakening job market that is expected to get even worse next year.

Following the report, Congress moved to approve legislation that would provide seven additional weeks of payments to people who have exhausted their benefits or will exhaust them soon.

For eager market bottom feeders anxious to know when it's safe to jump in, Vanguard Group Inc. chief investment officer Gus Sauter said to watch for signs that may indicate a turnaround.

He said the first sign investor confidence has returned could come when 3-month Treasury bill yields begin moving upward. Currently they're at 0.1 percent. He said he'd like to see the yield get to at least 0.5 percent to 0.75.

The low yield is an indication investors lack confidence in equities and are putting their money in the safety of government instruments.

A restoration of confidence could lead to more bargain hunters getting back in the market. Very low stock valuations encourage those with cash and the courage to stomach volatility to search for good buys.

"Look for companies that are leaders in their industry, companies you know will be here a few years from now," said Schwab's Frederick.

He says companies like Microsoft Corp., Hewlett-Packard Co. and The Procter & Gamble Co. will be here and are on sale.

He suggests buying small batches of stocks so that if the market drops further you don't lose significantly and if it goes up, you can always buy more.

Sauter said anyone who gets in the market now will look back 10 years from now and be glad they did.