Triggered by disappointing trade deficit reports, the Dow Jones industrial average plummeted 95.46 points yesterday -- the largest one-day point loss in history.
The Dow's plunge was accompanied by heavy selling in the bond and currency markets.
The unrelenting day-long slide took the Dow down to 2412.70, which was 309.72 points under the closely watched market index's all-time high of 2722.42 on Aug. 25.
The Dow's retreat since August represents a decline of 11.4 percent, the first time it has suffered a loss of more than 10 percent since 1984.
While yesterday's drop was a record in points, its percentage decline of 3.8 percent was far below the record 12.9 percent crash of Oct. 28, 1929.
Other stock market indicators declined yesterday, but by smaller amounts than the Dow average, which is made up of 30 blue chip stocks. The New York Stock Exchange Composite Index fell less than 3 percent -- by 4.76 points, to 171.26 -- while the Standard & Poor's 500 Stock Index plunged 9.29 points, to 305.23.
But the heaviest blows were felt by the 30 Dow industrials, which have been the biggest beneficiaries of gains this year. All 30 posted losses in yesterday's trading.
"It's a broad-based decline. They're not taking any prisoners," declared Hildegard M. Zagorski, market analyst at Prudential-Bache Securities.
Selling pressure spread to the bond market, where bond prices fell sharply, sending yields above the 10 percent level for the first time since 1985. The bellwether 30-year Treasury bond dropped $22.50 for every $1,000 of face value, boosting the yield to 10.16 percent.
Bond prices go down when interest rates go up to adjust the yields of older bonds so they remain competitive with newer bonds.
Volume on the New York Stock Exchange was heavy at 207.3 million shares. Losers beat gainers 1,401 to 285.
The huge scramble to dump stocks, bonds and dollars yesterday began about 8:30 a.m., shortly after the Commerce Department announced that the U.S. trade deficit totaled $15.68 billion in August -- down from $16.47 billion in July, but still higher than analysts expected.
"It was a bad number," said John D. Connolly, director of investment strategy for Dean Witter Reynolds.
Currency dealers and investors holding dollars quickly began to unload, driving the dollar down about 1 percent against the Japanese yen and the West German mark.
And that is where they stayed, with the dollar closing at 180.50 marks, down from 182.30 marks. Against the yen, the dollar closed at 142.50, down from its opening of 144.15.
Unlike previous occasions, when unfavorable trade numbers sent the dollar reeling only briefly, the dollar did not recover later in the day.
When the stock market opened at 9:30 a.m., computerized trading programs kicked in, driving the Dow down about 40 points in the first half hour. A second wave of computerized selling swamped the market from 1 p.m. to 2:45 p.m.
At its best, the Dow was down 38 points. The loss climbed steadily to the 95-point level by the close of trading.
The sell programs were set off when prices of futures contracts on stock indexes dropped below the price of the stocks, a sign that futures traders were pessimistic about the stock market.
Program trading, involving hundreds of stocks, is triggered by changes in the relative prices of stocks and futures contracts on stock indexes.
The deficit figures came as a shock to traders and investors hoping to see a more rapid closing of the trade gap, which would, in turn, provide support for the dollar and help American industry boost its production, said Connolly. "The game plan isn't working," he added.
As a result, he suggested, the administration would have to negotiate even lower levels for the dollar against foreign currencies.
As for stocks, Connolly said, "The basic problem is that the stock market is overpriced relative to the bond market. We're seeing the process of adjustment. ... The trend is down."
Connolly said, "We'll sit on our hands for a while. They say never try to catch a falling knife. This market looks like a falling knife to me."
Michael C. Aronstein, president of Comstock Partners Inc., a New York investment firm, described yesterday's stock market action as "the giving-up stage."
For the past six months, he said, "the stock market has been in a dream world," continuing to rise as the bond market fell.
Finally, the reality of higher interest rates has caught up with the stock market, he said, taking their toll on interest sensitive stocks.
The recent drop in retail stocks, he said, was one sign that "rates have begun to make a difference," Aronstein said.
Among the blue chips that make up the Dow, Merck was down 7 1/4 at 191 1/4; International Business Machines, down 3 1/2 at 145 1/4; Philip Morris, down 3 3/4 at 110 5/8; Procter & Gamble, down 4 3/4 at 94, and General Electric, down 2 3/8 at 57.
The auto stocks were also notably weak, weighed down by industry reports that showed a 39 percent decline in domestic car sales for early October. Ford Motor fell 3 1/4 to 92 1/2; General Motors 2 3/8 to 73, and Chrysler 1 3/4 to 36.
Few stocks responded to upbeat quarterly earnings reports. For example, Teledyne was down 1 5/8 at 373 3/4 despite word from the company that third-quarter earnings increased to $7.66 a share from $5.91 in the like period last year.
The American Stock Exchange index fell 3.90 to 340.72