Markets Plunge on Economic Worries

The Dow Jones industrial average took the steepest dive in two months yesterday amid investors' concerns that the global recession will be more severe than expected.

The blue-chip index fell 2.35 percent, or 200.72 points, to 8339.01, the biggest drop since April 20. Other indicators followed suit, with the broader Standard & Poor's 500-stock index falling 3.06 percent, or 28.19 points, to 893.04. The tech-heavy Nasdaq declined 3.35 percent, or 61.28 points, to 1766.19, dragged down by Apple's stock after reports over the weekend that chief executive Steve Jobs had received a liver transplant.

The declines came after markets closed in the red last week for the first time in more than a month. But Peter Cardillo, chief market economist with Avalon Partners, said he does not think the rally of the past few months will peter out. "I don't think this is the beginning of any major reversal," he said.

Still, investors were jittery yesterday after a World Bank report forecast that the world economy will contract by 2.9 percent this year, a sharper decline than the 1.7 percent it had previously estimated. The bank had released the revised estimate earlier in the month but did not issue a full report until yesterday morning.

Carl B. Weinberg, chief economist for High Frequency Economics, said the release of the report on an otherwise quiet day seemed to spook investors. "Clearly it was a factor on investor sentiment," said Weinberg, who said the contraction will be more severe than the World Bank has estimated. "There really wasn't a lot for them to jump on this morning except for this."

Investors sought shelter in Treasury bonds yesterday, sending prices up and yields down. In addition, yields were also depressed by the Federal Reserve's buyback of $7.5 billion in debt yesterday. But that loss is expected to be temporary as the Treasury Department auctions $104 billion in bonds this week to finance economic stimulus and bailout programs.

Investors are also hoping for insights into the country's economic recovery from the Federal Reserve's Federal Open Market Committee, which meets today and tomorrow. According to an analysis by Bloomberg, economists expect the Fed will leave the target rate for overnight lending between banks at zero to 0.25 percent.

In Europe and Asia, stock markets were down significantly. London's FTSE 100 dropped 2.57 percent yesterday, while France's CAC 40 declined 3.04 percent. The OMX Stockholm 30 fell 3.03 percent. Early today, Japan's Nikkei 225 fell as much as 3 percent in its morning session. Honk Kong's Hang Seng index was down 3.3 percent shortly after trading opened.