A weakness in durable goods orders at home and terrorism abroad thwarted an end-of-year rally in US markets, which finished lower.
Major US market indexes fell more than 1 percent each after Pakistani opposition leader Benazir Bhutto was assassinated and separate reports raised new questions about the economy. Troubled financial companies led the move downward, but losses were widespread.
The combination of bad news was too much for a market that had shown signs of strength in the past several trading days.
The Dow Jones industrial average sank 192.08 points, or 1.42 percent, to end at 13,359.61. The Standard & Poor's 500 Index slid 21.39 points, or 1.43 percent, to 1,476.27. The Nasdaq Composite Index tumbled 47.62 points, or 1.75 percent, to 2,676.79.
"Whenever this type of news comes out, whether its poor economic reports or rumors about more writedowns and dividend cuts, the market seems to sell off," said Todd Salamone, of Schaeffer's Investment Research.
Analysts differed, though, on how long the sell-off would last, particularly as it concerned the Bhutto murder. The former prime minister was killed in a gun and bomb attackafter a rally in the city of Rawalpindi on Thursday.
"A lot of people have unknowns like that built in via portfolio insurance and index puts," Salamone said. "They're less apt to panic. That doesn't mean the market won't sell off in the short term."
Reactions in the markets indeed appeared to be driven as much by the economic dataas the Bhutto assassination. Various reports showed new orders for durable goods falling below forecasts and applications for jobless benefits up, though consumer confidence gained as well.
US crude stocks fell more sharply than expected last week to the lowest level since the week ending Jan. 14, 2005, according to data released by the U.S. Energy Information Administration. Oilprices continued their march up, rising above $97 a barrel for light, sweet crude for February delivery.
More Subprime Losses
Battered financials are likely again to take focus, with news that Goldman Sachs raised its forecast for subprime lossesat banking giants Citigroup , Merrill Lynch and JP Morgan Chase . The sector has taken a beating this year as banks have written down billions of dollars in losses from risky mortgage lending. Goldman said the three banks may need to write off more than $33 billion in additional subprime debt.
Merrill will be announcing 1,600 layoff as a result of fourth-quarter writedowns, CNBC has learned. Also, Citi may need to slash its divided by 40 percent to preserve capital, Goldman said.
In related news, the Mortgage Bankers Association said mortgage applications droppedto their lowest level since late last year, even though borrowing costs have declined significantly.
Sallie Mae , the troubled student loan institution, saw its shares tumble after it announced the sale of $2.5 billion in new stock. The company, officially known as SLM, has seen its shares fall to a five-year low after its CEO failed, in a highly contentious teleconference, to provide enough information about Sallie Mae in the wake of a failed $25 billion buyout.
And shares at Document Sciences, a small-cap communications management firm, soared more than 74 percent on news that it would be acquired for $85 million by EMC.
One company that had a good day was Amazon , which saw shares rise after Warner Music announced it would being selling its music on Amazon's digital music store. Warner had been a holdout in the growing trend of selling music online without copy protection.