Stocks closed lower Monday after a burst of late selling drove major market indexes into the red as investors fretted about the risks of a global recession.
The Dow Jones industrial average, coming off a week in which it fell 5.4 percent, slid 203.18 points, or 2.4 percent, to 8,175.77. The broader Standard & Poor's 500 index fell 27.85 points, or 3.2 percent, to 848.92, and the tech-laden Nasdaq composite index lost 46.13 points, or 3 percent, to 1,505.90.
The Dow is now down 42 percent from its all-time high of 14,164.13 of October 2007.
On a more positive note, both the Dow and the S&P 500 have held above their Oct. 10 intraday lows of 7,884.82 and 839.80, respectively. Falling through those benchmarks could spark a fresh wave of selling on Wall Street, where the S&P 500 is already down more than 40 percent from its all-time high of a year ago.
The losses came at the end of another seesaw day of trading. The Dow skidded almost 175 points in early trading amid growing concerns that the economic downturn that began in the U.S. housing market is spreading around the globe. Sharp drops in overseas markets — especially in Asia, where Japan's Nikkei 225 index fell 6.4 percent to a 26-year low — rattled investors.
But a report showing an unexpected increase in new home sales in September boosted shares of home builders and evidence that the government's bailout plan is starting to kick in gave a lift to
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financial shares. The Dow rallied to a 220-point gain before falling back as the final hour of trading approached.
The selling accelerated as the closing bell neared, with the Dow shedding more than 200 points in the final half-hour of trading.
Extreme volatility has been a trademark of the current market downturn. The Dow has closed with triple-digit gains or losses in 31 of the last 36 trading sessions.
Still some analysts were hopeful that the market's midday gains indicate that some investors are willing to buy stocks on positive news.
"As soon as you get some glimmer of good news, money will come back," Thomas Nyheim, a fund manager for Christiana Bank & Trust Co., told Bloomberg News. "If the credit markets can resolve their problems, then companies in the equity market will start earning what they should in a normal business cycle."
But waves of forced selling by mutual funds, hedge funds and other big investors scrambling to raise cash to meet redemptions have repeatedly taken the starch out of rallies late in the day.
Investors are awaiting the results of the Federal Reserve's policy-setting meeting today and Wednesday. A majority of traders are betting that the Fed will cut its target lending rate to 1 percent from its current 1.5 percent, a level not seen since 2004.
Investors were also heartened by comments from the head of the European Central Bank that an interest-rate cut was "a possibility." The central bank has resisted cutting rates to the degree the Fed has, despite calls for more coordinated interest rate cuts.
Signs coming from the beleaguered credit markets were mixed. Interbank lending rates continued to inch down, but too slowly to satisfy some analysts, who say the rates need to fall more to stimulate lending. However, rates on Treasury securities also fell, a sign that investors are still seeking a safe haven for their money and are in no hurry to buy stocks.
In the commodity markets, oil for December delivery settled at $63.22 a barrel, down 93 cents or 1.45 percent on the New York Mercantile Exchange, while gold prices rose.
