Wall Street tumbles as financials slide

NEW YORK - Investors' despair about financial companies and the recession have brought the Dow Jones industrial average to another unwanted milestone: its first drop below 7,000 in more than 11 years.

The market's slide Monday wasn't nowhere near the largest is has seen since last fall, but the tumble below 7,000 was nonetheless painful. The credit crisis and recession have slashed more than half of the average's value since it hit a record high over 14,000 in October 2007. And now many investors fear the market could take a long time to regain the lost 7,000.

"We do feel that things can improve but it is going to be years before we get back to levels we saw in the markets a year ago," said David Chalupnik, head of equities at First American Funds.

Monday's move below the milepost came as insurer American International Group Inc. posted a staggering $61.7 billion in quarterly losses and as the government agreed to inject more money into the company. AIG will get another $30 billion in loans, on top of the $150 billion the government has already invested.

Investors also grew fearful that more banks will have to raise capital and risk depleting the value of the existing shares after HSBC PLC, Europe's largest bank by market value, said it needs to raise $17.7 billion. The company reported a 70 percent drop in 2008 earnings and said it would cut 6,100 jobs.

The fresh anxiety over hard-hit financial stocks pushed the blue chips below 7,000 for the first time since Oct. 28, 1997 and then below 6,900 for the first time since May 1, 1997.

"As bad as things are, they can still get worse, and get a lot worse," said Bill Strazzullo, chief market strategist for Bell Curve Trading. Strazzullo said he believes there's a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.

The "game-changer," he said, will be the housing market and whether it can stabilize.

In midafternoon trading, the Dow fell 214.89, or 3 percent, to 6,848.04. The Dow last closed below the 7,000 level on May 1, 1997.

Broader stock indicators also slid. The Standard & Poor's 500 index fell 25.15, or 3.4 percent, to 709.94, and the Nasdaq composite index fell 40.15, or 2.9 percent, to 1,337.69.

The Russell 2000 index of smaller companies fell 15.66, or 4 percent, to 373.36.

About 10 stocks fell for every one that rose on the New York Stock Exchange, where volume came to a moderate 1.16 billion shares.

Bond prices jumped as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 2.91 percent from 3.02 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.24 percent from 0.25 percent Friday.

The dollar rose against most other major currencies, while gold prices fell.

Light, sweet crude fell $4.40 to $40.36 per barrel on the New York Mercantile Exchange.

Mixed economic readings on Monday did little to dislodge a sense in the market that the economy's slide isn't slowing. Personal spending rose 0.6 percent in January and incomes rose 0.4 percent, while construction spending fell 3.3 percent, more than twice as much as economists expected. Manufacturing contracted in February for the 13th straight month, but at a slower pace than expected.

"I don't think we find a bottom in the market until we see some sort of increased level of optimism and confidence among consumers and investors," said Jim Baird, chief investment strategist at Plante Moran Financial Advisors.

Analysts are looking for indications in the economic numbers that businesses and consumers are starting to boost spending after making big cutbacks in the fall. But the economic readings are so alarming it weighs on sentiment.

"I don't think we find a bottom in the market until we see some sort of increased level of optimism and confidence among consumers and investors," said Baird.

Last week the Dow and the S&P 500 index fell below their Nov. 20-21 lows, reached at the height of the credit crisis. Many traders had hoped would mark the market's low.

"The economy definitely has deteriorated since November," said Sean Simko, head of fixed income management at SEI Investments. "It's just the fact that we haven't seen signs of improving or stabilizing, per se, which is adding to the morass of the market."