Traders work on the floor of the New York Stock Exchange Wednesday, Feb. 25, 2009. (AP Photo/Richard Drew)
NEW YORK — Investors steadied themselves Friday after initially dumping stocks when Citigroup Inc. announced details of its plan to turn over more of the company to the government.
Financials still dragged on the market but most stocks fluctuated in a narrow range after tumbling at the start of trading. Investors placed bets on technology stocks and other corners of the market that could benefit from an improvement in the economy.
Stocks closed off their lows of the day, but still had big losses as the market had its sixth straight losing month. The Dow Jones industrial average and the Standard & Poor's 500 index each shed more than 10 percent in February.
According to preliminary calculations, the Dow fell 119.15, or 1.7 percent, to 7,062.93. The blue chips fell as much as 149 points to near the 7,000 mark, a level they haven't moved below since October 1997.
Wall Street began the day with news that Citigroup had agreed to a deal in which the U.S. government and private investors including the government of Singapore and Saudi Arabian Prince Alwaleed Bin Talal will convert their preferred stock in the struggling bank to common shares. The plan won't require additional money from the U.S. government, which holds an 8 percent stake in Citigroup and would own 36 percent.
Some sort of deal with the government had been expected much of the week. But Citi fell 91 cents, or 37.1 percent, to $1.55 as investors worried about how much their holdings in the company would be diluted by the changes.
Dan Cook, senior market analyst at IG Markets in Chicago, said the Citigroup news spooked some investors although many expected the shares would see enormous dilution when the government increased its stake.
"They've been kind of the elephant that's been balancing on top of the toothpick. It's going to break but you just don't know when," he said.
Wall Street was also shaken in the early going when the government's gross domestic product report showed that the economy fell at a 6.2 percent annual pace at the end of last year, a much faster than expected pace. But the market eventually absorbed that report as unsurprising given how consumers and businesses slashed spending in the fall.
Wall Street had been hoping that stabilizing Citigroup will help ease worries about the beaten-down bank stocks and remove some of their questions about the prospects for the industry.
But Citi also booked an accounting charge of about $9.6 billion due to deterioration in the financial markets and lowered its forecasts. The company will reshuffle its board and make other changes.
The Commerce Department figures on GDP, the worst since an annualized drop of 6.4 percent in the first three months of 1982, cast some doubt that the economy will begin to show signs of improvement by the end of this year, as many analysts have predicted. But the poor showing also could make it that much easier for readings in coming quarters to look by comparison, Cook said. Investors would welcome even a slowing pace of decline.
Cook said the market's ability to show some recovery Friday despite the onslaught of bad news is a good sign.
"We have become somewhat callous to these news announcements," he said.