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Midday Market Update: Possible Fund Collapse Sends Stocks Lower

By Jennifer Yousfi
Managing Editor 

Concerns that the Carlyle Group would not be able to rescue its mortgage-bond fund, Carlyle Capital Corp Ltd. (CCC), stoked new fears about the credit crisis and sent indices heading lower today (Thursday).

At noon ET, the blue-chip Dow Jones Industrial Average Index had posted a loss of 59.83 points (-0.49%), to trade at 12,050.41. The tech-laden Nasdaq Composite Index dropped 12.55 points (-0.56%), to reach 2,231.32. And the broader Standard & Poor’s 500 Index had lost 6.52 points (-0.50%), to settle at 1,302.25.

All sectors were down with the consumer cyclical sector (-1.37%) and the financial sector (-1.28%) posting the largest declines.

The CCC fund has been unable to meet $400 million in margin calls and has an estimated $16.6 billion in debt that is currently in default with all remaining debt to go into default "soon," according to a statement from the fund. Shares of the fund plunged over 85%.

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"If Carlyle’s lenders want their money right away, they’ll liquidate the fund," Hank Calenti, a London-based analyst at RBC Capital Markets, told Bloomberg News. "That will put pressure on already stressed credit markets."

In overseas markets, Japan’s Nikkei Index had a 427.69-point decline to close at 12,433.44. Hong Kong’s blue-chip Hang Seng Index plunged almost 5% with a decrease of 1,121.12 points to close at 22,301.64.

"There are a couple of factors: there was no follow-through buying in the U.S. after the initial euphoria with the Fed move and the old concerns have returned – recession, subprime and all the rest," Andrew Clarke, a trader at Societe Generale, told Reuters, speaking of the decline in the blue-chip Hong Kong index. "There’s also concern that China may tighten with inflation going through the roof."

Mainland inflation is at 12-year highs and the Beijing government may be forced to take additional tightening measures.

In Europe, the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posted declines.

At midday, the dollar had lost ground against the euro [down 0.410%], the yen [down 0.997%] and the pound sterling [down 0.550%].

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