US: S&P hits 12-yr low as US stake in Citi stirs fear

* Govt stake in Citi spurs dilution worries
* Healthcare down for 2nd straight session on Obama plan
* US economy shrinks at 6.2% annual rate in 4th qtr
* Dow off 1.7%, S&P 500 off 2.4%; Nasdaq off 1%

NEW YORK - US stocks fell and the S&P 500 closed at a 12-year low on Friday, after the government said it will take a large stake in Citigroup's common shares, fanning fears it will increase its role in other major banks.

The decline closed out a grim month on Wall Street, with the Dow industrials hitting the lowest level since May 1997 as the blue-chip index fell for a sixth straight month.

Healthcare and drug companies, such as Merck & Co and Johnson & Johnson, fell for a second day on Friday on worries that US President Barack Obama's budget proposal will strangle profits as the administration tries to rein in healthcare costs.

Data showing the US economy shrank at an annual rate of 6.2 per cent last quarter also weighed on the market.

Citigroup shares tumbled 39 per cent after the government said it will convert up to US$25 billion in the bank's preferred shares to common stock in a move that could dilute existing shareholders' ownership by 74 per cent. The S&P financial index sank 8.1 per cent.

The Dow Jones industrial average dropped 119.15 points, or 1.66 per cent, to 7,062.93. The Standard & Poor's 500 Index fell 17.74 points, or 2.36 per cent, to 735.09. The Nasdaq Composite Index slipped 13.63 points, or 0.98 per cent, to 1,377.84.

US stocks have lost US$10 trillion since peaking in October 2007.

For the week, the Dow fell 4 per cent, the S&P 500 slid 4.5 per cent and the Nasdaq dropped 4.4 per cent.

For the month, the S&P fell 11 per cent and the Nasdaq shed 6.7 per cent.

Source: Singapore Business Times - 28 Feb 2009