IMPEACH BUSH

Sept. 16 (Bloomberg) -- U.S. stock-index futures declined after a record jump in overnight lending rates and the credit downgrades of American International Group Inc. showed strains on the financial system are intensifying.

AIG plunged 37 percent, Goldman Sachs Group Inc. lost 9.7 percent and Morgan Stanley declined 17 percent as the cost of borrowing in dollars more than doubled, according to the British Bankers' Association. Washington Mutual Inc. fell 12 percent after its credit rating was cut to junk. Dell Inc. dropped 7.7 percent following the computer maker's prediction of slower demand. Energy producers dropped after oil posted the steepest two-day retreat in almost four years.

Standard & Poor's 500 Index futures expiring in December lost 22.80 points, or 1.9 percent, to 1,173.30 at 9:02 a.m. in New York. The S&P 500 sank 4.7 percent yesterday. Dow Jones Industrial Average futures fell 141, or 1.3 percent, to 10,808. Nasdaq-100 Index futures decreased 23.75, or 1.4 percent, to 1,697.50.

``There's a recession still ahead of us and it exacerbates the credit crunch and puts a further damper on investor and consumer psychology,'' said David Joy, who helps oversee about $149 billion as chief market strategist at RiverSource Investments in Boston.

The S&P 500 posted the steepest drop since the September 2001 terrorist attacks and stocks erased more than $600 billion of value yesterday after Lehman Brothers Holdings Inc.'s bankruptcy spurred speculation that credit-market losses may push the U.S. into a recession.

Consumer Prices Fall

Stocks continued their decline even after the Labor Department said the cost of living in the U.S. declined in August for the first time in almost two years as falling fuel costs and a slowing economy cooled inflation. The government's consumer price index decreased 0.1 percent.

The Federal Reserve announces its interest-rate decision at about 2:15 p.m. in Washington. Futures traders give 82 percent odds that the central bank will shift to 1.75 percent today from 2 percent. The Fed lowered its target for the overnight lending rate between banks seven times from September 2007 through April.

AIG declined $1.75 to $3.01. Its credit ratings were downgraded by S&P and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs and JPMorgan Chase & Co. to replenish capital.

Biggest Profit Decline

Goldman Sachs retreated $13.15 to $125.40. The largest of the two remaining independent U.S. securities firms posted a 70 percent decline in quarterly profit, the sharpest drop in its nine years as a public company. Goldman Sachs said it remains ``well positioned'' despite turmoil in credit markets.

Morgan Stanley, the only other independent securities, lost $5.35 to $26.84.

Financials fell after the cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of AIG led banks to hoard cash.

The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, the British Bankers' Association said. The rate was 2.19 percent a month ago and 2.15 percent last week. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses.

Washington Mutual dropped 24 cents to $1.76. The biggest U.S. savings and loan had its credit rating cut to junk by S&P because of the deteriorating housing market. WaMu has reported $6.3 billion of losses in the last three quarters due to soured mortgages.

Dell slumped $1.39 to $16.60 after the second-biggest personal-computer maker predicted ``further softening'' in demand this quarter and said it will record expenses to trim payrolls.

Crude for October delivery lost as much as 5.1 percent to $90.83 a barrel. Exxon Mobil Corp. fell 1 percent to $72.51. Chevron Corp. retreated 1.3 percent to $79.01.

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
Last Updated: September 16, 2008 09:04 EDT