By Jeff Kearns and Eric Martin
Sept. 18 (Bloomberg) -- Kraft Foods Inc., the world's second-largest foodmaker, will replace American International Group Inc. in the Dow Jones Industrial Average after the biggest U.S. insurance company was taken over by the government.
Kraft, whose top shareholder is Warren Buffett's Berkshire Hathaway Inc., will replace AIG on Sept. 22. News Corp.'s Dow Jones Indexes said it declined to add another financial company to the 112-year-old stock average ``because of the extremely unsettled conditions'' in global markets.
AIG lost 80 percent this week after the U.S. government said it will get a 79.9 percent stake in return for an $85 billion loan that analysts said will be repaid by liquidating the company. The New York-based insurer was added to the Dow average in April 2004 along with Verizon Communications Inc. and Pfizer Inc., replacing International Paper Co., Eastman Kodak Co. and AT&T Inc.
``When you think of a Dow stock, you think of a company with a stable, solid business model and an enduring franchise representative of the American economy. Kraft clearly fits that bill,'' said Christian Andreach, who helps oversee $18 billion at Manning & Napier Advisors in Fairport, New York. ``It should give the stock a short-term kick.''
Kraft, based in Northfield, Illinois, rose $1.04 to $33.69 as of 12:50 p.m. in New York. AIG added 10 cents to $2.15 after falling 96 percent since the start of the year.
Company Weightings
The ouster of AIG leaves the Dow average with an 8.4 percent weighting in financial companies, compared with 14.4 percent for the Standard & Poor's 500 Index, another U.S. stock benchmark. Kraft becomes the gauge's only food products company after its former parent, Altria Group Inc., was removed in February.
``We realize this decision leaves the Dow Jones Industrial Average under-weighted in financials, and we will address this situation in due course,'' said Robert Thomson, managing editor of The Wall Street Journal. The newspaper's top editors oversee the average's makeup.
The Dow average is intended to comprise ``established U.S. companies that are leaders in their industries,'' according to the Dow Jones Web site. Berkshire is the largest U.S. company by market value that isn't in the gauge.
The weighting of financial companies in the benchmark increased in February when Dow Jones added Bank of America Corp. The Charlotte, North Carolina-based lender has dropped 35 percent since, saddled by more than $21 billion overall in losses from the collapse of the sumbprime mortgage market.
The Dow average, created by Wall Street Journal co-founder Charles Dow in 1896, fell to the lowest since 2005 yesterday and has dropped 25 percent from an October record. Citigroup Inc. had the worst performance among the average's banks during the retreat, losing 71 percent of its value on $55.1 billion in housing-related writedowns, the most among U.S. firms. American Express Co., the largest U.S. credit card company by purchases, tumbled 35 percent as consumer spending slowed amid growing job losses.
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