U.S. Shares Sink Despite Late Rally

NEW YORK -- The Dow Jones industrial average tumbled along with stock markets around the world Monday, raising fears of a cascading market meltdown as oil prices sank and investors rushed for the safety of government bonds and gold.

The Dow fell a record 800 points before a partial recovery that left the blue chips down 369.88 points for the day, to 9955.50, a decline of 3.6 percent. It was the first time in four years that the Dow slipped below 10,000.

The broader Standard & Poor's 500-stock index fell 3.9 percent, or 42.34, to 1056.89, while the Nasdaq composite index shed 4.3 percent, or 84.43, to 1862.96. Meanwhile, benchmark indexes of British, German and Swedish stocks plunged more than 7 percent, while stocks in Asia, the Middle East and Latin America also moved lower.

"The financial system across the world is being questioned right now," said Gary Wedbush, an executive vice president at the brokerage Wedbush Morgan Securities in Los Angeles.

After a stock market rout in Asia and Europe, an early panic erupted in U.S. trading.

"There's absolutely no industry right now that has bullish sentiment associated with it," said Randy Cass, chief executive of First Coverage, a Boston firm that analyzes stock market recommendations made by brokerages and independent research firms.

Bank of America led the Dow lower, falling 6.6 percent, to $32.22. The stock continued to drop in after-hours trading, following the bank's announcement that it would cut its dividend in half and raise $10 billion to ward off concerns about its access to financing.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," Bank of America chief executive Kenneth D. Lewis said in a statement.

Citing "recessionary conditions" and an outlook for "still weaker economic performance," Lewis said it was "prudent" for the bank to shore up its funding levels.

The worst declines in the Dow on Monday were spread across several industries, with Alcoa, General Motors, Merck, Microsoft, Boeing, Citigroup, McDonald's and Disney all dropping more than 4 percent. Financial stocks including National City, Janus Capital and Lincoln National were among the worst performers in the S&P 500.

Oil prices hit an eight-month low as expectations for a slowing economy implied a coming drop-off in demand for petroleum products. Crude oil for November delivery dropped 6.5 percent, or $6.07, to settle at $87.81 a barrel on the New York Mercantile Exchange.

The concerns about Europe's banking system weakened the euro, extending recent gains in the U.S. dollar and exacerbating the decline in prices for raw materials such as oil, traders said.

"Over the last five years, we've been in kind of an inflationary trend in terms of commodities, and a lot of that was dependent on the dollar" being weak against other currencies, said Thomas Hartmann, a broker and analyst at Altavest Worldwide Trading.

"Now we're seeing a reversal of that, and a lot of air coming out of these markets," he said. "Couple that with fear of a slower economy, and it's a double whammy for these markets."

An exception to the commodities rout was gold. Until recently, gold often moved in the opposite direction of the U.S. dollar as investors piled into one or the other. But gold futures moved up with the dollar Monday, rising 4 percent, to $866.20 an ounce.

"That's the flight to quality," Hartmann said. "There's a sector of people that want something tangible, and gold is truly an asset, whereas currencies -- the euro, the dollar -- it's paper, and some people have trouble being comfortable with that now."

The yield on two-year Treasury notes fell to 1.43 percent from 1.58 percent Friday as investors accepted lower returns to park their money in safe havens.

Trading strategists said they would continue to look for cues from the Federal Reserve, which is facing strengthening calls for an interest rate cut, and the Treasury Department, which is starting to implement its $700 billion plan to take weakened assets of the books of financial companies.

"Monetary authorities are throwing a lot of ammunition at this and attempting to get something to catch and hold," said Bob Doll, vice chairman and chief investment officer for global equities at BlackRock. "They will throw more at it if that's what it takes."

Staff writer Renae Merle contributed to this report.