Stocks had their worst start to March ever, ending at 12-year lows, as another bailout of insurance giant AIG stirred fear about the stability of the financial system.
The Dow Jones Industrial Average dropped 299.64, or 4.2 percent, to close at 6,763.29. It was the first time the Dow has closed below 7,000 since since May 1997.
The S&P 500 shed 4.7 percent to close at 700.82. The Nasdaq dropped 4 percent, ending at 1,322.85.
The Nasdaq suffered the least of the three major indexes as Intel and Dish Network provided a few glimmers of hope amid the wreckage.
The day's economic points were predictably dismal but Robert Brusca of FAO Economics, said he saw the first glimmer of hope in a steadying of the ISM manufacturing index.
"The end of the Recession is near. So don’t repent — rejoice!" Brusca wrote in a note to clients. "My first indicator that forecasts/diagnoses recession endings is saying WOOP-DEE-DOO!"
That may be the buzz in the economy circles, but someone forgot to tell the market.
Stocks ended at 12-year lows today and it can get worse from here, Art Cashin, director of floor operations at UBS, told CNBC.
"You're beginning to hear people get a little more despondent as this continues to sell day after day," Cashin said. "There's a growing sense of frustration about not quite being in control here — Not knowing where the next shoe in Imelda Marcos's shoe closet is," Cashin said.
Financials led the broader decline as this latest bailout move by the government rattled the market.
American International Group reported a $61.7 billion quarterly net loss, prompting the government to pump billions in fresh capital into the insurance giant — the third such cash infusion.
The $30 billion bailout provided a stark reminder that some of America’s biggest corporations are still in a critical condition. Further rattling the market, AIG CEO Edward Liddy told CNBC that he can't rule out the potential need for another bailout.
Shares of AIG ended flat, after being up for most of the day, following news of the capital injection and earnings.
But the climate of uncertainty continued to spread havoc through the market, particularly in financials, as the AIG bailout comes fresh on the heels of news last week that the government would increase its stake in Citigroup to 40 percent.
Citigroup tumbled 20 percent to close at $1.20, while JPMorgan Chase and Bank of America lost more than 7 percent. Wells Fargo shed more than 10 percent.
PNC Financial fell 4.5 percent after the bank said it was cutting its dividend in a move it said would save $1 billion.
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General Motors was among the biggest drags on the Dow, falling 11 percent, as questions persist over whether the auto maker can survive.
Selling pressure snuffed out the lone bright spot on the index this morning, Intel . The chip maker had gained following news that it is about to unveil a strategic partnership with TSMC, the world's biggest maker of made-to-order computer chips. Intel shares fel 3.4 percent.
McDonald's briefly turned higher but as the closing bell neared, all 30 Dow stocks were lower.
Dish Network also did an about-face and joined the sea of red, ending down 12 percent. The stock had benefitted from a report that fourth-quarter net income rose 24 percent as revenue gains offset a loss in its customer base.
CNBC.com-parent General Electric shares continued to slump, falling 11 percent to close at $7.60, after the company announced Friday it was cutting its dividend but still in danger of losing its triple-A credit status.
A sharp drop in oil prices hit energy producers. US light, sweet crude dropped more than $4 a barrel to settle at $40.15 a barrel, and Chevron fell more than 5 percent.
Also in the sector, Chesapeake Energy saw its shares drop 14 percent as the company announced it cut back 7 percent on production capacity and more cuts are being considered.
International Paper also announced a dividend cut to 2.5 cents a share from 25 cents, a move expected to last well into the future and one expected to preserve $100 million each quarter. Its shares dropped 10 percent.
Health-care and drug companies, which could be hit hard by the Obama budget, saw their stocks fall for a fourth straight day.
Shares of Sallie Mae also continued to fall, sliding another 19 percent, amid worries about a provision in the budget that would clip the student-loan guarantee program.
Retail stocks tanked following news that consumer spending rose for the first time in seven months but the savings rate jumped to 5 percent, the highest level since 1995.
Beer makers were one of the few industries showing any strength, with the Dow Jones US Brewers index gaining about 2.2 percent, led by Molson Coors Brewing .
Decliners outpaced advancers 15 to 1 on the New York Stock Exchange, where nearly 2 billion shares changed hands. Last year, the daily average was bout 1.5 billion.
The gloomy outlook for investors was underscored by the annual letter from billionaire investor Warren Buffett to Berkshire Hathaway shareholders. Buffett admitted “dumb” mistakesthat led to a 96 percent fall in fourth quarter net profit.
Today's rout follows a global slide in which major European indexes lost 3 to 5.3 percent, as investors there were rattled by the AIG bailout as well as news that banking giant HSBClaunched a $17.7 billion rights issue in the wake of severe losses caused by bad debts.
President Barack Obama is expected to meet UK Prime Minister Gordon Brown this week in the hope of cementing ties between the two countries and working together to combat the financial crisis.
TUESDAY: Auto sales; pending-home sales; Geithner to testify before House panel on budget; Obama meets with UK prime minister
WEDNESDAY: Weekly mortgage applications; ADP, Challenger jobs reports; ISM services index; Fed's beige book; Earnings from BJ's, Costco and Toll Bros.; UK prime minister addresses joint session of Congress
THURSDAY: Chain-store sales; European rate decisions; weekly jobless claims; factory orders; Senate hearing on AIG
FRIDAY: Jobs report; consumer credit
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