Dow Falls Below 9,600 as Banks Get Slammed

The Dow dropped below 9,600 Monday after global markets took a pounding amid fear that the credit crisis is spreading around the globe.

The Dow Jones Industrial Average was down more than 700 points, or 7 percent, falling through 10,000 and quickly breaching 9,900, 9,800, 9,700 and 9,600 in rapid succession, levels it hasn't seen in nearly four years. The Dow first hit 10,000 at the end of March, 1999. (Track the Dow winners  and losers.)

"There are absolutely no buyers," Matt Cheslock, a senior specialist at Cohen Specialists, And with the credit markets frozen, "equities are a source of liquidity right now," he said.

To put the Dow's decline in perspective, we're not even halfway to the first circuit-breaker trigger level announced by the NYSE last week. According to the fourth-quarter guidelines, an 1100-point drop in the Dow before 2 p.m. will halt trading for one hour, a 2200-point drop before 1 p.m. will stop trading for two hours, and a 3350-point drop will shut down trading for the rest of the day, regardless of what time it occurs.

"We'd actually like to see a little more panic," Cheslock said. "Then you get stocks that go down and bounce," enticing buyers, he said. "Eighteen percent might seem like a discount but when you don't get a bounce it's not. The stock could go down another 2 percent," he explained.

The S&P 500 was down about 7 percent, while the Nasdaq lost more than 7 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared to a record above 50.

There were nearly 1,000 new intraday lows set on the New York Stock Exchange, the highest since 1998. And 48 percent of stocks in the U.S. are sitting at 52-week lows.

The fear sent a ripple through markets around the world: Latin American markets were at their session lows; trading was halted twice in Brazil after the index dropped 15 percent. European stock markets had their worst day in four years, with most indexes shedding 7 percent or more, amid fear that the credit crisis has spread to European banks. Asian markets also took a hit, with Japan's Nikkei 225 Average dropping more than 4 percent.

Source: Nyse.com NYSE fourth quarter circuit breaker levels

Crude oil tumbled more than $4 a barrel to under $90 on fears that a global recession will dampen demand for energy.

That, of course, sent energy stocks spiraling, with ExxonMobil off 2 percent and Chevron off 5 percent.

One historical note of optimism, such big drops in commodities typically occurs at the end of a market downturn.

Bank stocks took the hardest hit: Citigroup , Bank of America and JPMorgan were among the biggest drags on the Dow, all three down more than 5 percent.

Regional banks got clobbered: National City was down more than 20 percent, while Sovereign Bancorp fell more than 10 percent.

Wachovia shares were briefly halted around noon amid news that Citigroup was filing a complaint, citing breach of contract, after Wachovia snubbed its bid in favor of a deal with Wells Fargo. Citi is apparently seeking $60 billion in damages.

A district court judge set a court hearing for Tuesday to decide whether an exclusivity agreement in Citigroup's bid to buy Wachovia's banking assets prevents a competing deal by Wells Fargo to go forward.

U.S. lawmakers expressed outrage over the collapse of Lehman Brothers during hearings on the matter, saying the firm's executives, board and regulators all share the blame. Former Lehman CEO Richard Fuld testified that regulators were aware of everything Lehman did — including how it priced its distressed assets — before its collapse.

(Check out a timeline of Lehman's collapse.)

JPMorgan was accused of allegedly precipitating the collapse of Lehman Brothers by freezing Lehman assets days before it filed for bankruptcy protection, UK newspaper the Sunday Times reported.

Technology stocks also took a pretty good beating amid worries that the global slowdown is going to clamp down on tech spending, both by businesses and individuals.

Apple , Research In Motion , Google and Microsoft were all down more than 7 percent.

EBay lost more than 10 percent after the online auctioneer announced plans to reduce its work force by 10 percent and said it expects to beat its third-quarter earnings forecast. The company also announced $1.3 billion in acquisitions — the Bill Me Later payment service and a Danish online-classifieds firm.

ImClone was among the few advancers today, following news that it will be bought by Eli Lilly for $70 a share after rejecting a sweetened offer from Bristol-Myers Squibb .

The offer from Eli Lilly values ImClone, which makes the cancer drug Erbitux, at $70 per share, a premium of 51 percent to ImClone's closing share price on July 30, the day before Bristol-Myers made an offer of $60 a share.

With hopes that the bailout package voted by Congress would calm the markets dashed, investors are now looking to the Federal Reserve to make the next move. Traders expect the Fed to slash the current 2 percent target Fed funds rate by a half point before its next meeting, Oct. 28.

>> Poll: Should the Fed Announce an Emergency Rate Cut?

This Week:

MONDAY: House Oversight hearing on Lehman collapse
TUESDAY: Bernanke, Stern speak; Fed minutes; consumer credit; Earnings season kicks off with Alcoa, Yum Brands; Second presidential debate
WEDNESDAY: Weekly mortgage applications; Fed's Plosser speaks; Pending-home sales; Weekly crude inventories; Earnings from Costco, Monsanto and Ruby Tuesday
THURSDAY: Retailers report Sept. sales; Bank of England announcement; Weekly jobless claims; Wholesale trade; Natural-gas inventories; Fed's Stern speaks; Earnings from Chevron
FRIDAY: Import/export prices; Trade gap; Treasury budget; Earnings from GE

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