Stocks were flat Monday as the market was buzzing about an emergency rate cut.
Asian markets tumbled and European stocks opened lower amid increased concerns about a U.S. recession following Friday's weak jobs report.
In economic news, wholesale inventories rose 0.8 percent, more than expected, in January, though wholesale sales shot up 2.7 percent, the largest increase in four years, according to a report from the Commerce Department. Sales of durable goods were particularly robust, increasing 2.4 percent from December.
Talk about an intermeeting rate cut by the Federal Reserve picked up after Goldman Sachs analysts said in a research note that they expect the Fed to drop its target for the federal-funds rate to 2 percent by late April. That will most likely happen through cut of half a percentage point at the next two regularly scheduled meetings, the analysts said, but added: "We cannot rule out an intermeeting rate cut today."
The Fed's next regularly scheduled meeting is next Tuesday, March 18.
Investors are also trying to call the bottom of this market downturn, considering the S&P 500 ended last week down 17 percent from its October high. The Nasdaq is already down more than 20 percent from its October high, the definition of a bear market.
"I think we're ... knocking on the door being in a bear market," Jeff Knight, chief investment officer at Putnam, told CNBC, adding, "I think there's still more bad news to come ... there's a lot more capitulation to go."
"You can throw all your rational market theory out the window right now," Rich Berg, chief executive of Performance Trust Capital, added. "The credit markets are like a massive sea anchor right now on the stock market and it's going to be hard to get much speed going when you've got an anchor sitting in the water dragging bottom."
Financials were beaten down again as bad news continued to pour from the sector.
Shares of Ambac Financial Group plunged after the bond insurer reported its net income fell 27 percent to $173 million in the second quarter from $238.6 million a year earlier, citing unrealized mark-to-market losses related to credit-derivative exposures.
Larger rival MBIA also saw its shares slide after the company on Friday asked Fitch Ratings to take several of its units off the Fitch Ratings system, saying it only adds extra volatility to the stock.
Fannie Mae and Freddie Mac continued to decline -- with both trading at a more than 12-year low -- following a weekend report in Barron's that Fannie may require a government bailout.
U.S. federal authorities opened an investigation into the largest mortgage lender, Countrywide Financial, to see whether it misrepresented the soundness of its loans and its financial conditions in security filings.
And Carlyle Capital Corp, the Dutch-listed affiliate of private equity firm Carlyle Group, said it was still in talks with its lenderstrying to persuade them not to liquidate their securities. Margin calls and default notices from lenders ballooned to more than $400 million last week, the company said.
Merrill Lynch offered a bit of hope, as CEO John Thain told French newspaper Le Figaro that the bank would not need to raise more capitalto strengthen its balance sheet.
"These problems are behind us. We will not return to the market," Thain was quoted as saying.
And Annaly Capital Management boosted its dividend to 48 cents for the first quarter, a 40 percent increase from the fourth quarter.
But J.P. Morgan warned that Wall Street banks are facing a "systemic margin call" that may deplete them of $325 billion of capital due to deteriorating subprime U.S. mortgages.
And billionaire investor Wilbur Ross said he thinks the next phase of this downturn will be bank failures. Those at biggest risk are medium-sized banks that got tangled up in mortgage debt.
"I think that's going to be the next wave, and coupled with problems in the commercial real estate market; I think they'll be the next bubbles that burst," the chairman and CEO of W. L. Ross and Company told CNBC's "Squawk Box" in an exclusive interview.
Lehman Brothers is expected to announce today that it is laying off 5 percent of its global work force, CNBC reported, citing people familiar with the matter. More cuts are expected.
Asset manager Blackstone reported its earnings plunged 86 percent to $128.2 million from $894.9 million a year earlier due to the credit crunch and a write-down of bond insurer FGIC.
McDonald's, the biggest gainer on the Dow, rose 1.5 percent after the fast-food giant said U.S. same-store sales rose 8.3 percentin January, well above the 1 to 2 percent analysts had expected, helped by coffee sales. Such sales rose a more robust 15 percent in Europe.
Consumers got another hit as gas prices reached a new high of almost $3.20 per gallon. They will likely jump another 20 to 30 cents in the next month as refiners become more willing to pass on their higher costs of crude oil, Lundberg price survey editor Trilby Lundberg said.
Crude oil initially fell below $105 a barrel Monday, as traders cashed in profits after last week's rally that spurred a new record at $106.54 a barrel, but the gauge soon ticked higher to a record $106.80 a barrel.
The dollar fell to an eight-year low against the yen, but gained slightly against the euro after Europe's top monetary official said he's concerned about excessive exchange-rate moves.
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