Late selling tripped up the major indexes. Investors fretted about the global economy, subprime lenders, and stock losses overseas
U.S. stocks finished lower Monday, giving up an early rebound attempt amid a global slump that began in Asia overnight on news China wants to slow economic growth. European stocks were down, as last week's yen "carry trade" position unwinding continued. Worries about the U.S. subprime mortgage industry also weighed on sentiment.
On Monday, the Dow Jones industrial average fell 63.69 points, or 0.53%, to 12,050.41, paced lower by Alcoa (AA). The broader Standard & Poor's 500 index dropped 13.05 points, or 0.94%, to 1,374.12. The tech-heavy Nasdaq composite slid 27.32 points, or 1.15%, to 2,340.68.
NYSE breadth was negative, with 28 issues declining for every 6 advancing. Nasdaq breadth was 25-6 negative.
Stocks' recent slide comes as investors have begun factoring in downside risks, some analysts say. "Having fully discounted a 'Goldilocks' global economic outlook over the course of an uninterrupted rally that began last July, markets were priced to perfection, leaving little room for further gains, by our analysis," says Alec Young, equity market strategist at Standard & Poor's Equity Research. "Concern regarding a potential global economic slowdown has taken hold amid weaker U.S. economic data and fears the Chinese government may succeed in slowing China's red-hot growth."
Chinese Premier Wen Jiabo said overnight Monday the government was working on the assumption that gross domestic product would grow by about 8% this year, the same target it set last year, when GDP actually climbed 10.7%, according to a Reuters report. Wen said the target had been set to remind local officials of the need "to avoid seeking only faster growth and competing for the fastest growth." He did not rule out raising interest rates.
After the close Friday, Federal Reserve Chairman Ben Bernanke indicated the Fed was keeping a close eye on global markets. Bernanke said the subprime mortgage industry's problems haven't spilled over to prime mortgages.
Treasury Secretary Henry Paulson, in a TV interview over the weeekend, said the economy is healthy. He downplayed the risk of a downturn.
In other economic news, the Institute for Supply Management's non-manufacturing business activity index fell more than expected to 54.3 in February, down from 59.0 in January.
Separately, St. Louis Fed President William Poole reiterated the importance of low inflation, while Fed Governor Kevin Warsh said financial markets have shown "extraordinary resilience." Fed Governor Randall Kroszner also said markets are working well.
The calendar Tuesday holds reports on January factory orders and fourth-quarter nonfarm productivity growth.
Among Monday's stocks in the news, New Century Financial (NEW) was down nearly 70% after the subprime lender said it faces a criminal investigation.
Fellow real estate lender Fremont General (FMT) was lower by about 32% after the company said it plans to exit the subprime home-loan business.
Meanwhile, Research in Motion (RIMM) was lower after the BlackBerry maker said it expects to record about $250 million of charges as it restates earnings following a review of its stock-options grants.
Advanced Micro Devices (AMD) was lower as the chipmaker said it probably won't meet its previous first-quarter revenue forecast of $1.6 billion and $1.7 billion.
On the M&A front, Pathmark Stores (PTMK) agreed to be acquired by rival grocer Great Atlantic & Pacific Tea (GAP) in a deal valued at about $1.3 billion in cash, stock, and debt assumption.
In analyst calls, Palm (PALM) was lower after the J.P. Morgan cut its recommendation on the company from neutral to underweight.
In the energy markets, April West Texas Intermediate crude oil futures fell $1.57 to $60.07 a barrel amid worries a slowing global economy would reduce demand.
European markets finished lower, but improved from their weakest levels. The FTSE-100 index in London dropped 42.6 points, or 0.7%, to 6,073.6. Germany's DAX index slid 81.07 points, or 1.23%, to 6,522.25. In Paris, the CAC 40 index was down 46.53 points, or 0.86%, to 5,378.17.
Asian markets ended sharply lower. In Japan, the Nikkei 225 index skidded 575.68 points, or 3.34%, to 16,642.26. In Hong Kong, the Hang Seng index tumbled 777.13 points, or 4%, to 18,664.88. Korea's Kospi index shed 38.32 points, or 2.71%, to 1,376.15.
Treasury prices drifted lower after climbing overnight amid weakness in global equities. The 10-year note edged down in price 01/32 to 100-31/32 for a yield of 4.5%, while 30-year bonds slipped 03/32 to 101-24/32 for a yield of 4.64%. The decline in Treasury prices may reflect some profit-taking following last week's big gains, says S&P.