Dow Plunges 680 Points on Economic Woes

The S&P 500 and Nasdaq each tumbled nearly 9% Monday after dismal reports on U.S. manufacturing sentiment and construction spending

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Different month, same stock market.

U.S. stocks suffered a sharp sell-off on the first day of December, and closed at their worst levels of the session. The large-cap S&P 500 index and the technology-heavy Nasdaq composite index each sank nearly 9%. The declines in major U.S. indexes erased most of the gains from the market's five-session rally.

On Monday, the Dow Jones industrial average finshed lower by 679.95 points, or 7.7%, at 8,149.09. The broad S&P 500 index dropped 80.03 points, or 8.9%, to 841.35. The tech-heavy Nasdaq composite index sank 137.50 points, or 8.95%, to 1,398.07.

Things were even worse in other corners of the market. The S&P MidCap 400 index tumbled 10.9% Monday.

The U.S. stock market "is facing a new round of selling pressure as the financial picture is still a question mark," said Jay Collins of DT Trading in Chicago. "[The U.S. jobs report] due on Friday is the news story of the week and is expected to reinforce the bleak jobs picture that lies ahead."

"The downturn happened so fast today there wasn't much chance to position for it," said S&P technical analyst Chris Burba.

Wall Street was spooked by fresh reminders of economic weakness in the U.S. and around the globe. Among the items driving the selling: A report released Monday by the Institute of Supply Management showed that U.S. manufacturing contracted at the steepest rate in 26 years in November. Another reports showed construction spending slumping in October.

To put an exclamation point on the economy's troubles, the National Bureau of Economic Research's business cycle dating committee, widely recognized as the arbiter of U.S. recessions, said the economy began its current downturn in December, 2007.

Meanwhile, Treasuries experienced an enormous rally as investment capital flowed heavily

out of equities. Traders cited speculation of more rate cuts by the Federal Reserve and possibly government purchases of Treasuries in order to keep yields down and support lending.

Oil futures plunged to finish below $50, their lowest close in three years. The U.S. dollar index was higher. Gold futures plunged on demand worries.

Fed Chairman Ben Bernanke said Monday that the central bank will act as needed to preserve the viability of key institutions and that

further interest-rate reductions are "certainly feasible." Bernanke said the economy remains under "considerable stress" and acknowledged that the Fed's various liquidity programs have failed to return private credit markets to normal.

Also, U.S. retail data from the first weekend of the holiday shopping season were mixed and "not really impressive" according to S&P MarketScope.

On the New York Stock Exchange Monday, 28 stocks were lower in price for every four that posted gains. The ratio on the Nasdaq was 24-4 negative.

Equity markets in Europe finished sharply lower, with major indexes down 5.2% in London, 5.9% in Frankfurt, and 5.6% in Paris registering declines. Asian markets ended mixed, with Tokyo stocks falling 0.9%, Hong Kong climbing 1.6%, and Shanghai gaining 1.3%.

Wall Street looked to news on the retail sector as the all-important holiday shopping season kicked off on Friday, Nov. 28. "We believe consumers remained spooked by market turmoil and refrained from shopping during [November]. We are projecting one of the weakest Holiday shopping seasons on record," wrote Merrill Lynch analyst Lorraine Maikis in a note Monday.

Technology shares were hard-hit Monday. Intel (INTC) was among the stocks leading the way lower with a decline of 9%. The Semiconductor Industry Association reported Monday that worldwide sales of semiconductors declined 2.4% in October to $22.5 billion compared to sales of $23.0 billion in October, 2007.

Among the other industry groups hard-hit in Monday's session: The S&P Investment Banking & Brokerage index fell 15.2% as Ladenburg Thalman analyst Richard Bove cut his earnings estimate for Goldman Sachs (GS), citing the impact of changes in the value of the company's holdings in China and Japan.

The S&P Oil & Gas Exploration & Production index plummeted 14.8% amid the sharp decline in crude oil futures.

The Diversified Metals & Mining index slumped 12%. Bloomberg reported that copper fell for a second day in Shanghai after China's contraction in manufacturing signaled the growing risk of a slump in the world's biggest consumer of the metal. The S&P Gold index fell 8.1% amid a sharp drop in prices for the yellow metal.

The Automobile Manufacturers index dropped 8.7% amid fresh developments in the beleaguered sector. Ford Motor Co. (F) announced that it will re-evaluate strategic options for Volvo Car Corp., including the possible sale of the Sweden-based premium automaker. Ford said the decision comes in response to the significant decline in the global auto industry particularly in the past three months and severe economic instability worldwide.

General Motors' (GM) management on Sunday was racing to finalize a viability plan to take to Congress, with a boardroom hellbent on securing a federal rescue loan, according to a Wall Street Journal report. At the same time, directors -- unlike chief executive Rick Wagoner -- are also insisting that all options stay on the table, including a Chapter 11 bankruptcy filing, if a bailout doesn't come through, said the Journal.