US STOCKS-Wall St set to tumble at open on Citi, GDP


May 28, 2010 Updated May 28, 2010 at 6:40 PM EDT

* Govt taking common equity stake in Citi, stock tumbles

* Citi drops 43 percent pre-market, BofA off 18 percent

* U.S. economy shrinks at 6.2 pct annual rate in 4th qtr

* Futures fall: S&P 17.00 points, Dow 138, Nasdaq 17.25

(Recasts first paragraph, updates prices)

By Ellis Mnyandu

NEW YORK (Reuters) - U.S. stocks headed for a sharp
slide at Friday's open as news the government was taking a
large common equity stake in embattled lender Citigroup
sowed more uncertainty over the fate of major banks.

Additionally, government data showed that the recession
deepened in the fourth quarter, with the economy shrinking at
an annual rate of 6.2 percent, worse than initially estimated.

"The fourth quarter was much weaker than expected and the
first quarter won't be much better," said Subodh Kumar, chief
investment strategist at Subodh Kumar & Associates in Toronto,
Canada. "I think people will be watching the 750 level (on the
S&P 500) to see if it holds."

S&P 500 futures fell 17.00 points and were below
fair value, a formula that evaluates pricing by taking into
account interest rates, dividends and time to expiration on the
contract. Dow Jones industrial average futures tumbled
138 points, and Nasdaq 100 futures lost 17.25 points.

The slide in stock index futures suggested that the
benchmark S&P 500 could open below its Nov. 21 bear
market low, falling to levels last seen in 1997.

Early Friday, the U.S. Treasury said it would convert
dollar-for-dollar its $25 billion worth of preferred shares in
Citigroup to match conversions by private preferred holders in
a bid to strengthen the ailing lender's capital base. The
conversion, however, does not involve pumping more government
cash into the bank.

Investors fretted over which other banks might see similar
action as Washington grapples to stabilize the banking sector
and worries persist about dilution of current shareholders.

Shares of Citigroup dropped 43 percent to $1.40 before the
bell, while shares of Bank of Americashed 18 percent
to $4.38. JPMorganwas down 5.1 percent at $21.88.
(Additional reporting by Ryan Vlastelica; Editing by James

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