US stocks slide to 12-year lows, oil also down

A deep contraction of the US economy pushed oil prices down on Friday while global equity markets fell on the latest US government move to save ailing Citigroup, knocking the S&P 500 and Dow to 12-year lows. The US government said it could take as much as a 36 percent state in Citigroup's common stock, leading the US dollar to rise broadly as investors worried that other American banks might also need a similar show of support. US Treasuries erased early gains and long-dated bonds turned lower after a brief paring of stock losses led investors to fear a rebounding equity markets could take money away from looming massive sales of government debt. The broad market Standard & Poor's 500 Index fell to its lowest close since December 1996, increasing the depth of a bear market that is now off 53 percent from its peak in 2007. The Dow Jones industrial average fell to its lowest close since May 1997. The US government will swap up to $25 billion of its preferred shares of Citigroup into common stock of the bank in one of its most dramatic efforts to prop up the battered banking sector. Citigroup will stop paying dividends on its preferred and common stock and promised to shake up its board of directors. Citigroup shares plunged 39 percent to close at $1.50, while shares of Bank of America plummeted almost 26 percent to $3.95. "There are continued beliefs that Citibank is not the last bank that the government will take a large stake in," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. "Some people believe that if the government takes a 30 to 40 percent stake, which they did in Citibank, that would be considered some form of nationalization," he said. The Dow fell 119.15 points, or 1.66 percent, at 7,062.93. The S&P 500 lost 17.74 points, or 2.36 percent, at 735.09. The Nasdaq Composite Index declined 13.63 points, or 0.98 percent, at 1,377.84. The dollar rose but the yen rebounded from sharp weekly losses as month-end and repatriation flows gave some support to the currency, analysts said. The dollar rose against a basket of major currencies, with the US Dollar Index up 0.33 percent at 88.132. Against the yen, the dollar fell 0.87 percent at 97.53.