US stocks tumbled on Monday as worries about the economy and the troubled financial sector overshadowed the announcement of a rescue plan for mortgage giants Fannie Mae and Freddie Mac.
Financial stocks were among the blue chips hit the hardest, with insurance giant AIG down 12%. Shares of Citigroup fell 7.5%, Bank of America sank 5.1%, and Wachovia tumbled 6%. Bond insurer Ambac was the biggest loser for the day, falling 19%.
Merrill Lynch, AIG and Fannie Mae led financial shares to a third straight drop after the IMF warned that worsening credit conditions may prolong the economic slowdown in the US. Verizon slid to an almost two-year low on a bigger-than-estimated decrease in home-phone lines.
Tyson Foods tumbled the most in six weeks after profit sank 92% on higher feed costs.
The S &P 500 Index slumped 23.39 points, or 1.9%, to 1,234.37, its lowest level since reaching an almost three-year low on July 15. The Dow slid 239.61 points, or 2.1%, to 11,131.08. The Nasdaq Composite Index dived 46.31 points, or 2%, to 2,264.22.
Market breadth was very negative. Four stocks fell for each that rose on the New York Stock Exchange.
US indices had finished slightly higher in the previous session on encouraging reports from the housing and manufacturing sectors.
Stocks opened lower as worries about the credit crisis were exacerbated by federal regulators shuttering two more regional banks on Friday. They came off their lows briefly after Treasury Secretary Henry Paulson laid out guidelines for banks seeking to issue covered bonds as a way to finance home mortgages.
Investors will see if the US market can rebound on Tuesday as a key measure of consumer confidence is due to be released shortly after the opening bell. Scores of earnings reports are also due before and after the market.
Government-sponsored mortgage finance giants Fannie Mae and Freddie Mac turned higher after the Senate approved a bill that could establish a rescue plan for the embattled firms. Shares of Fannie and Freddie both soared in morning, but turned sharply down by midday. Fannie fell 10.7% and Freddie sank 6.7%.
Oil prices rose US$1.47 to US$124.73 per barrel as traders weighed slumping demand with renewed concerns about Iran's nuclear capabilities. Nonetheless, crude is still about US$24 below its high of US$147.27 set on July 11.
The average price of gasoline in the US fell 1.2 cents to US$3.958 per gallon.
In currency trading, the US dollar slipped against global currencies. The greenback fell against the euro, even as a measure of German consumer confidence fell to a more-than-five-year low.
COMEX gold for August delivery rose 90 cents to settle at US$927.70 an ounce after fluctuating above and below the break even point for much of the day.
Treasury prices rose, sending the yield on the benchmark 10-year note down to 4.01% from 4.11% late on Friday.
Europe stocks ended lower, as German consumer confidence dropped to a five-year low, Citigroup downgraded the banking sector and Ryanair Holdings warned of the possibility of its first-ever annual loss. The pan-European Dow Jones Stoxx 600 closed 1.1% lower to 278.73.
In Germany, the benchmark DAX 30 fell 1.3% to 6,351.15. The French CAC 40 fell 1.2% to 4,324.45 and the UK's FTSE 100 slipped 0.8% to 5,312.60.
In the emerging markets, the Bovespa in Brazil dropped 0.6% to 56,869 while the IPC index in Mexico was down 1.3% at 26,732. The RTS index in Russia slipped 1.2% to 1928 and the ISE National-30 index in Turkey gained 1.9% to 46,990.
