U.S. stocks sank yesterday after Bush administration officials suggested over the weekend that a decision to go to war could be just a week away.
"It's been a painful slow grind down as we await the inevitable firing of the guns," said Robert Barbera, chief economist for the brokerage ITG/Hoenig in New York.
Yesterday's selling was broad. The benchmark indexes and all 30 components of the Dow Jones industrial average retreated. U.S. markets moved close to their 2002 lows. European, Asian and Latin American stock markets also fell sharply.
The Dow shed 171.85 points, or 2.2 percent, to close at 7568.18. The Standard & Poor's 500-stock index fell 21.41 points, or 2.6 percent, to 807.48.
The Nasdaq composite index, which hit its all-time peak of 5048.62 three years ago yesterday, dropped 26.92 points, or 2.1 percent, to close at 1278.37. The dollar fell against the euro and the yen.
War concerns continued to drive down yields on U.S. Treasury securities, in some cases to their lowest levels since the 1950s. Money flooded out of stocks and into Treasury issues, which are regarded as super safe.
At its weekly auction, Treasury sold $17 billion worth of three-month bills at a yield of 1.08 percent and $17 billion in six-month bills yielding 1.05 percent, the lowest level since the latter bills were first issued in 1958. Meanwhile, in market trading yields on two-year Treasury notes fell to 1.31 percent, the lowest in more than half a century.
Longer-term yields also continued to fall as a result of the move toward bonds and to the recent spate of statistics showing that U.S. economic growth appears to be stagnating. For example, yields on 10-year Treasury notes fell, suggesting that rates on 15- and 30-year home mortgages may continue to fall.
Richard Cripps, chief equity market strategist for Legg Mason in Baltimore, said war jitters and weakening economic indicators are battering the markets. The two factors together are "causing buyers to stay away for lack of confidence," he said.
When trading volumes are this light, a few sellers can have a huge impact on the market, said Jeff Swensen, an equities trader for John Hancock Funds in Boston.
The war fears hit airline stocks hard, since they are sensitive to any news that makes travelers stay at home or implies oil prices will stay high.
American Airlines stock was especially hurt after the company's flight attendants union said it had reason to believe the airline would file for bankruptcy sooner rather than later. Shares of American's parent company, AMR, plunged 40 cents, or 14.2 percent, to $2.41.
* The New York Stock Exchange composite index fell 116.03, to 4529.07; the American Stock Exchange index fell 9.91, to 816.14; and the Russell 2000 index of smaller-company stocks fell 6.17, to 348.01.
* Declining issues outnumbered advancing ones by 3 to 1 on the NYSE, where trading volume fell to 1.21 billion shares, from 1.36 billion on Friday. On the Nasdaq, decliners outnumbered advancers by 5 to 2 and volume totaled 1.08 billion, down from 1.41 billion.
* The price of the Treasury's 10-year note rose $5.94 per $1,000 invested. Its yield, which moves in the opposite direction, fell to 3.57 percent, from 3.64 percent on Friday.
* The dollar fell against the Japanese yen and the euro. In late New York trading, a dollar bought 116.94 yen, down from 116.99 late Friday, and a euro bought $1.1045, up from $1.1010.
* Light, sweet crude oil for April delivery settled at $37.27, down 51 cents, on the New York Mercantile Exchange.
* Gold for current delivery rose to $354.70 a troy ounce, from $350.80 on Friday, on the New York Mercantile Exchange's Commodity Exchange.