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Retail Hit Hard in Historic Sell-off Monday

Retail shares fall 4.3 percent as Dow closes below 6,800.

The Dow Jones Industrial Average tumbled through the 7,000 mark and kept falling Monday, hitting its lowest level in nearly 12 years and pulling down retail shares 4.3 percent in its wake.

Escalating global fears about the fragility of the financial sector and the drastic measures that could be necessary to right hobbled world economies dragged the Dow down nearly 300 points, or 4.2 percent, to 6,763.29. It started the day below the psychologically significant 7,000 mark, dipped below 6,900 before noon and left behind the 6,800 barrier in the final hour of trading.

Meanwhile, despite word from the Commerce Department that consumer spending in January rose for the first time in seven months, the S&P Retail Index finished the day at 241.05, down 10.74 points or 4.3 percent.

However, unlike the Dow and the battered S&P 500, which ended the day at its lowest level since 1996 after a 4.7 percent decline Monday, the retail index averted both near- and longer-term lows.

While the Dow briefly fell below 7,000 on Friday, Monday was the first day it had closed below that milestone since May 1, 1997. The new 52-week low of 6,755.97 hit earlier on Monday is 48.8 percent below the corresponding high of 13,191.49 hit last May 2.

The Dow had last closed below 6,800 on April 28, 1997.

The declines on Wall Street are reinforcing unsettling news throughout the financial landscape, such as Monday’s disclosure of yet another round of bailout money for AIG, and contributing to restrained consumer spending.

“You get headline fatigue,” said Craig Johnson, president of Customer Growth Partners LLC, in anticipation of Wall Street’s top-story role on Monday night’s newscasts. “It’s little wonder that people are holding their purse strings tighter. The problem is with all this headline fatigue, nobody wants to spend anything.”

In a best-case scenario, Johnson sees spending picking up in the fourth quarter but felt a recovery “well into 2010” is more likely.

Although Ben Garber, economist at Moody’s Investors Service, believes the recession, now in its 16th month, might technically be over by the end of the year, “we will not be entering into a period of strength or rapid recovery,” he said.

In order for a recovery to begin, Garber said investors would have to perceive stability in financial institutions. For that to happen, the government will need to complete its “stress tests of the banks,” he said, essentially “telling the banks to raise [their] own money” or prepare to be “taken over.”

Publicly held fashion companies will continue to do what they can to curb costs as they struggle for scarce disposable income from consumers. After seeing its shares fall 18.1 percent to $2.08 on Monday, The Talbots Inc. revealed it had finalized terms of its $200 million unsecured term loan facility from Aeon Co. Ltd., the parent company of Talbots’ principal shareholder.

The retailer also noted that its board had voted to suspend the company’s quarterly dividend, saving it about $29 million this year, and, for an additional $6 million in savings, freeze its pension plans, which earlier had been altered to freeze participation for employees hired since the end of 2007.

Earlier in the day, J. Crew Group Inc., which announced layoffs and other cost reductions on Friday, had been one of the few apparel retailers with stock gains, but the New York-based specialty chain’s shares ended the day down 0.6 percent at $11.19.

Others fared far worse. Among the specialty retailers sustaining double-digit declines in stock prices were Frederick’s of Hollywood Group Inc., down 43.3 percent to 17 cents; Eddie Bauer Holdings Inc., 22.6 percent to 48 cents; Stein Mart Inc., 15.8 percent to $1.01, and The Wet Seal Inc., 12 percent to $2.20.

The somber mood on a snowy day in New York followed similarly negative results in markets worldwide. Declines were even steeper in Europe, where both London’s FTSE 100 and Paris’ CAC 40 hit new lows. The London index dropped 5.3 percent to 3625.83, while the end-of-day quote in Paris was down 4.5 percent to 2,581.46.

In London, Marks and Spencer Group plc’s shares dropped 4.6 percent to 249 pence, or $3.49 at current exchange, after Credit Suisse analyst Tony Shiret issued a research note criticizing chairman Sir Stuart Rose’s leadership of the company.

“The current regime has not delivered on strategy or stability, and shows no sign of doing so,” said Shiret, adding Britain’s largest clothing retailer has failed to revitalize the brand and draw in younger customers. M&S’ share price has fallen 36 percent over the past year.

In Asia, the Nikkei 500 fell 3.8 percent to 7,280.15 in Tokyo, while Hong Kong’s Hang Seng Index dropped 3.9 percent to 12,317.46.