Wall Street report: Monday close

FALLOUT from the

The Dow Jones Industrial Average slipped 87.60 points or 0.9% to 9,763.96, while the Nasdaq Index gave up 25.68 points or 1.3% to 1904.90. Both markets had made November their strongest month since April.

Among losers were JP Morgan, down $1.17 or 3.1% to $36.55, and Citigroup, off 99 cents or 2% to $46.91, lead lenders to Enron. Analysts said much of Enron's debt, revealed in the group's bankruptcy filing at $32bn (£22bn), had been syndicated to other global banks, but the two major lenders would still take a significant hit.

Richard Bernstein, chief quantitative strategist at Merrill Lynch, told clients that Enron's bankruptcy was triggering fears of a credit crunch similar to those sparked by the near-collapse of hedge fund trader Long Term Capital Management three years ago. 'While we are not quite sure those parallels are as close as some have suggested, we think this bankruptcy is strong evidence for one of our major themes - credit risk is being significantly underestimated and underpriced,' he said.

Enron filed for bankruptcy at the weekend, days after prospective buyer Dynegy backed out of takeover talks, claiming it had been made aware of the group's wider difficulties. Enron was the seventh biggest company in America just a year ago, and was the world's leading energy trader until it was forced to restate profits and admit that its financial problems were far greater than disclosed. Enron said it would chop 4,000 of the 21,000 jobs at its Houston headquarters and other redundancies are expected.

Enron shares rose 14 cents or 54% to 40 cents despite analysts' warnings that the shares could go to zero in bankruptcy. Dynegy shares tumbled $3.18 or 11% to $27.17.

American Express slumped 77 cents or 2.3% to $32.14 and Merrill Lynch lost 97 cents or 1.9% to $49.12. Goldman Sachs fell $2.99 or 3.4% to $86.01. Steps to stop a run on banks in Argentina, which has debts totalling $95bn, also played into general credit fears.

And violence in Israel over the weekend stoked concern that a larger conflict may be looming. Oil prices rose on the growing Middle East tension. ExxonMobil added 26 cents or 0.7% to $37.66.

'People are nervous about Enron, and, of course, you've got the Israeli situation,' said James Volk, co-director of institutional trading at investment firm D.A. Davidson & Co. 'We're due for some kind of correction here.'

The Enron and international situations outweighed figures showing some brighter aspects to the recession-hit US economy. Personal spending rose a strong 2.9% in October from September's depressed levels in the wake of the terror attacks. A national purchasing managers' manufacturing index was not as downbeat as some economists had feared and building construction held at higher levels than expected.

But the consensus remains that the US Federal Reserve will cut interest rates again, possibly by 0.25%, when it meets on 11 December to help lift the economy out of the recession which started officially in March.

Reports that Ford was set to announce a cost-cutting plan which will include lay-offs and a lowering of profit estimates hit the second biggest carmaker. Ford shares tumbled $1.14 or 6% to $17.80, down from $31 in May. General Motors, which has also been offering zero-interest loans to entice buyers, slumped 67 cents or 1.4% to $49.03. Latest figures showed GM sales rising at twice the pace of Ford.

United Technologies slid $1.29 or 2.1% to $58.91 as machinists at its Pratt & Whitney jet aircraft engine maker went on strike. Software maker Oracle declined 33 cents or 2.4% to $13.70 as a broker downgraded profit forecasts.

Among Dow components, General Electric retreated $1.58 or 4.1% to $36.92 as Salomon Smith Barney said some its businesses might be falling below expectations, Walt Disney surrendered 50 cents or 2.4% to $19.97 and Intel was shaved 62 cents or 1.9% to $32.04 in a generally weak tech sector.