Dow Drops 370 Points

The blue chip index sank below 10,000 amid deepening worries about the financial crisis. Markets in Europe and Asia also tumbled

by Will Andrews and Karyn McCormack

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U.S. stocks finished sharply lower Monday, but a glance at the closing numbers doesn't even begin to tell the story of yet another nerve-wracking day on Wall Street.

At one point during the session, the big three U.S. indexes posted losses of 8% or greater -- an ugly echo of the Sept. 29 market rout, which resulted in the greatest one-day percentage losses for market benchmarks since 1987. The Dow fell as much as 800 points during the session, driving it below 10,000 for the first time since October, 2004, before the late-session upswing. But in the final hour of trading, buyers jumped in -- accompanied by a notable increase in trading volume -- trimming the market's outsized losses virtually in half.

Still, the closing numbers were ugly, and served as a reminder of the excruciating volatility investors have had to endure in recent weeks amid investor worries about the health of the financial system and credit markets -- and the rising likelihood of a U.S. recession.

Call Monday's action in U.S. markets a half-meltdown.

On Monday, the blue-chip Dow Jones industrial average fell 369.88 points, or 3.58%, to 9,955.50. The broader S&P 500 index shed 42.34 points, or 3.85%, to 1,056.89. The tech-heavy Nasdaq composite index tumbled 84.43 points, or 4.34%, to 1,862.96.

Monday's rout brings the Dow's loss for the year to almost 25%. The S&P 500 is now down 28%, while the Nasdaq has lost nearly 30% this year.

One-day chart of DOW

The U.S. VIX equity volatility index, the stock market's favored "fear gauge," hit a fresh cycle high of 58.24 earlier before retreating back to 52.05.

U.S. equity markets joined a worldwide sell-off fueled by fears that policy makers may not be able to cure the ailing global economy anytime soon. "We're really in an emotional sell-off state," says Alex Paris, president of Barrington Research, an economic and investment research firm in Chicago. "It's hard to identify the bottom, but we're in the bottoming process."

Market watchers are worried that the U.S. government's financial rescue plans won't stop the economy from falling into a recession. "I was hoping it won't stop us from having negative GDP growth, but it's not enough to keep [the economy] from turning into a real downturn," Paris says.

However, Paris believes the economy is in the maturing stages of a downturn, as the housing and auto industries have struggled for the last three years, rather than the beginning of one. Usually, the stock market moves higher before the economy recovers. And with stocks now at a "throw-away stage" -- he says he's planning to slowly invest in high-quality stocks like General Electric (GE), which is trading at just 10 times estimated earnings.

Bonds moved higher Monday as the Fed moved to add liquidity to the financial system. The 10-year note rallied 34/32 to 104-14/32 for a yield of 3.46%, while the 30-year bond soared 57/32 to 108-01/32 for a yield of 3.98%. No major U.S. economic reports were scheduled for Monday.

The U.S. dollar index rallied on speculation the European and U.K. central banks will cut interest rates. Gold futures were higher in a flight to safety.

Crude oil futures skidded below $90 per barrel on prospects of lower demand, ending down $6.32 to $87.56 a barrel, an eight-month low.